Government steps unlikely to do much to prop up motown in FY20

MUMBAI: A raft of recent federal measures to drive consumption might improve sentiment and help arrest this millennium’s most pronounced sales slide in automobiles, but the steps may not be enough for the industry to log positive growth in FY20.

Crisil and ICRA expect the market to remain in the negative growth trajectory. The most optimistic scenario is that instead of a double-digit decline in car and bike sales, the market may register a single-digit contraction.

Hetal Gandhi, director, Crisil Research said: “We expect these indirect measures will have a staggered and limited impact on automobile demand in FY20. We forecast a low to midsingle-digit drop in automobile sales for FY20.”

Last Friday, the Centre sought to infuse Rs 70,000 crore of capital into public sector banks, which experts believe will improve liquidity in the system and the real impact may only be seen in the coming couple of quarters.



As for the depreciation benefit of 15-30%, Crisil is of the opinion that large fleet operators already claim 30% depreciation on vehicle purchase. As for small fleet operators, the depreciation benefit will only trigger prebuying if there is enough cargo movement.

In passenger vehicles, the depreciation benefit will be majorly availed by corporate buyers that account for 15-20% of the total sales. There too buying decision is driven by internal budgets. Higher depreciation will aid the expected BS-VI norm-driven pre-buying in Q4FY20, added Crisil.

And government buying is still very small, at 5% of the total market. So, the effective impact of an immediate resumption in government purchases on the overall passenger vehicle market is expected to be rather modest.

The decision to defer the proposed increase in registration fees until June 2020 and clarification on registration of BS-IV vehicles are sentiment boosters. Some fence-sitters may buy, but those decisions at best would help the sales in the coming months to remain in a positive territory. For the fiscal year, however, the industry will likely decline.