Commercial vehicle sales surpass expectations, indicating strong economic activity

Sales of commercial vehicles – a barometer of economic activity – surpassed expectations last quarter driven by strong replacement demand and continued government spending on infrastructure.

As per industry estimates, more than 234,000 trucks and buses were sold in the local market in the three months ended June, a 4.5% rise from 224,000 vehicles sold a year earlier.

CV makers like Tata Motors and Ashok Leyland said the industry had expected sales to decline in the fiscal first half due to the implementation of the election model code of conduct and perceived slowdown in infrastructure activity in an election year.

Demand momentum is expected to accelerate further in the second half, lifting sales by 9-12% to more than 1 million units in FY25, breaching earlier records. As many as 1,007,311 trucks and buses were sold during the pre-pandemic peak in FY19 and 967,878 units in the last financial year.

“This year, we had said that the first quarter would be soft, due to the general election. But the industry actually held up pretty well. As we go ahead, we are expecting good pick-up in the second half after rains subside,” Girish Wagh, executive director at market leader Tata Motors said. “We should see good single-digit growth for the entire year, as opposed to initial predictions made by experts that growth will remain flat.”

Recovery in rural demand and improving global trade led the Reserve Bank of India (RBI) to raise its real GDP growth forecast for FY25 to 7.2% from 7% in its monetary policy review in June.

Shenu Agarwal, managing director at Chennai-based Ashok Leyland said, “What we see on the ground is very positive, be it freight movement, freight rates, activity in steel, cement and iron-ore sectors. There is a lot of work going on on the Dedicated Freight Corridors (DFC), which will also boost sales of commercial vehicles.”

In the interim budget presented in February, finance minister Nirmala Sitharaman increased capital allocation for infrastructure development to a record Rs 11.11 lakh crore for FY25.

Industry stakeholders expect the focus on capital expenditure, especially in growth-related programmes, to sustain amid an improvement in government finances.

Vinod Aggarwal, managing director, VE Commercial Vehicles said, “This year, we should be able to cross the pre-covid peak (in CV sales). Replacement demand will continue to remain strong. Government finances are better with fiscal deficit coming in lower than initial estimates, tax collections have been setting new records. We should see lot more growth-related initiatives.”

India’s fiscal deficit stood at 5.6% of the GDP in FY24, below the revised estimate of 5.8%. At the same time, the Centre’s net tax receipts last fiscal were higher than projected at Rs 23.27 lakh crore, or 100.1% of the year’s target.

Overall, India is projected to spend Rs 143 lakh crore on infrastructure in the next seven fiscal years through 2030, which will support sales of trucks and buses, mid-term.

“If we look at a slightly longer term, there is a good infrastructure push from the government, which augurs well for the industry. One should see good industry volumes over the next five years,” said Wagh at Tata Motors.

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