November 10, 2020
The COVID-19 pandemic has resulted in certain headwinds, but the industry is on the path to recovery.
Economic growth , Government projects and regulations and overall industry development will drive growth.
The industry foresees promising growth in the coming years.
The availability of financing options drives demand for commercial vehicles.
The Commercial vehicle industry has faced several headwinds in 2020 due to a variety of factors exacerbated by the ongoing COVID-19 pandemic. However, the industry is finally beginning to see some green shoots as overall economic activity picks up. Commercial vehicles retail sales saw a 12.3 percent on-month rise in October, as per a report from Care Ratings. Based on the trend, industry leaders, such as Tata Motors, are optimistic about the industry’s recovery.
As of FY 2019, commercial vehicles accounted for close to 4 percent of India’s total domestic automotive production volume; producing 1,112.18 thousand units of commercial vehicles. The market is classified into light commercial vehicles and medium and heavy commercial vehicles. Over the years, several factors such as the growth in online retailing and logistics services and Bharat Stage-VI (BS-VI) norms have helped grow the market.
Commercial vehicles sales saw a 12.3% rise in October, where passenger sales vehicles rose by 27.7%
India finds a place among the leading manufacturers and exporters of commercial vehicles in the world. This has been bolstered by various government policies that are conducive to growth. This includes initiatives such as the Make in India campaign, the Automotive Mission Plan (AMP) and National Electric Mobility Mission Plan (NEMMP) etc., among others.
Demand for commercial vehicles is closely intertwined with larger economic indicators and developments in allied sectors such as manufacturing, retail etc. Therefore, there are several factors that will help drive growth in the commercial vehicles segment. These include:
Major Government Infrastructure Projects
The Government’s commitment to invest in major infrastructure projects will play an important role in boosting demand. One great example is the National Infrastructure Pipeline project, which is a USD 1813.66 bn first-of-its-kind, whole-of-government exercise to provide world-class infrastructure to citizens and improving their quality of life. In addition, clearances for major development works including mining, national highways, and port projects will also play a big role.
Change in MSME Definition
The Government’s directive to bring changes in the definition of micro, small and medium enterprises (MSMEs) issued in May 2020 will also prove to be helpful to the commercial vehicles sector, since it helps suppliers to run their operations more viably.
Pick up in Local Goods Transformation
As transportation of local goods slowly comes back to pre-pandemic levels, it has helped boost demand for small commercial vehicles. The growth of e-commerce has also led to improved demand especially for light commercial vehicles. In the last few years, India’s rank in the World Bank’s Logistics Performance Index (LPI) has improved considerably from 54 in 2014 to 44 in 2018 for overall logistics performance. Therefore, the long term growth of the Indian logistics sector is a big growth factor for commercial vehicles.
Bounce Back in Industrial Production
The Indian economy has demonstrated steady growth in GDP over the years, making it one of the fastest growing economies in the world. The manufacturing sector too has grown at 8–10 per cent per annum in the last few years, and this growth is expected to continue in the future too. In turn, this will help boost the demand for commercial vehicles.
Access to Affordable Financing Options
Given that most commercial vehicle purchases happen on credit, the growing availability of easy financing options makes it much easier for users to purchase commercial vehicles.
Prominence of Road Transportation
Road transportation has emerged as one of the preferred modes of transportation in India over the last few decades. While road transport accounted for about 15 percent of overall transportation of goods back in the 1950s, that number today stands at close to 60 percent. Better road quality, growing road network, reduction in the differential between road and rail costs, and the ability for last mile connectivity have been some factors driving this shift, which has facilitated the growth of the commercial vehicles industry.
Regulatory Initiatives
Initiatives such as the enforcement of overloading restrictions has helped increase safety and also contributed to greater demand for commercial vehicles. Also, restrictions on usage of older vehicles has led to a greater number of replacement sales.
Despite temporary setbacks, the commercial vehicle industry in India is set to grow rapidly in the coming years, driven by overall economic growth in the country.