CV industry gets a boost, Centre announces Rs 20 lakh crore investment for roads

by Shahkar Abidi 31 Dec 2019

Here's some good news for the Indian auto industry just as 2019 is set to shift gear into 2020. Finance Minister Nirmala Sitharaman today unveiled a massive Rs 102 lakh crore infrastructure development pipeline (NIP). This includes Rs 20 lakh crore investment in the road sector.  These projects are likely to be implemented over the next five years. The finance minister added that another Rs 3 lakh crore worth of projects is expected to be added in a couple of weeks.

This development is expected to provide some cheer to the beleagured automobile industry in general and the commercial vehicle segment in particular. The CV industry, specifically the medium and heavy commercial vehicle (M&HCV) segment, has been badly impacted by the prolonged industry downturn and the slowed economy. Add to that the revised axle load norms, reduced lending by NBFCs, following the IL&FS scam and lower rentals that compelled fleet owners to defer their purchases, volatility in freight rates and increase in diesel prices

For the first eight months of the ongoing fiscal year FY2020, overall CV sales comprising 504,080 units are down 22% year on year. Of this, the critical M&HCV segment accounts for 154,814 units, down 37% year on year. CV industry experts are of the view that the domestic industry could take between two to three years to reach the previous sales peak of FY2012. The just-announced infrastructure investment plan will surely give a much-needed boost to the sector. 

The just-announced big-ticket investment on developing road infrastructure should bring some solace to the beleaguered Indian CV industry, particularly M&HCV sales.

It is estimated India needs to spend about $1.4 trillion (Rs 100 lakh crore) by 2024-2025 to achieve $5 trillion GDP in this period. In the past decade (FY2008-17), India invested about $1.1 trillion on infrastructure. Prime Minister Narendra Modi, had in his Independence Day speech, spoken of investing Rs 100 lakh crore in infrastructure. According to the finance minister, a task force was formed which held discussions with over 70 stakeholders before coming up with a report, within a period of around four months  before coming with the report.

The NIP will be funded 39 percent by the Centre and State each while 22 percent may come from the private sector. Out of the total Rs 102 lakh crore, about Rs 42.7 lakh crore of investment is already in the implementation stage.

The finance minister added that, as of now 18 states are going to be part of the NIP while others may join later. In the past six years, around Rs 51 lakh crore of investment has been made in the infrastructure sector, which is about 5-6 percent of GDP spent.