The accelerated depreciation benefit of 50 per cent provided for commercial vehicles purchased this quarter may not help push demand for commercial vehicles significantly, as about three-fourth of the market is dominated by customers who do not even fall under the income tax bracket.
According to the second stimulus package announced yesterday by the government, a buyer of a commercial vehicle can show an accelerated depreciation of 50 per cent for the year for vehicles purchased on or after January 1, 2009, up to March 31, 2009.
The revised rate of depreciation, which is significantly higher than the normal rate of 15 per cent allowed earlier, is aimed at boosting CV sales within the limited period of time.
R Sridhar, managing director, Shriram Transport Finance Company, said, "The depreciation advantage will only benefit large and medium truck and bus operators, who are also tax payers. But their size in the market is quite small when compared to small operators who form about 75 per cent of the CV market."
Small operators are those who own only one or two vehicles, while medium operators own up to 10-12 vehicles. Large players are those who own more than 15 vehicles.
Somnath Bhattacharjee, senior VP (sales and marketing), VE Commercial Vehicles, said, "Higher depreciation benefit will only support the key strategic customers whose revenue levels are high. But it is not going to influence the purchase decision of small and medium transporters who form the largest part of the CV market."
VE Commercial Vehicles is a joint venture between the Delhi-based Eicher Motors and Swedish commercial vehicle giant AB Volvo.
During April-November, the CV industry recorded a fall of almost 10 per cent in sales at 270,220 units, following stringent lending norms imposed by various financial institutions.
The government also announced on January 3 that it would work with all leading public sector banks to provide a special line of credit to non-banking finance companies for the purchase of CVs.
Although various NBFCs -- including Sundaran Finance, Mahindra Finance and Shriram Transport Finance Company -- welcomed the government's move, they remained apprehensive about the rate of credit and the allotment period.
"The government has responded to the industry's requirements of infusing liquidity into the system but it will be equally important to see for what period the credit will be allotted to us. If we are lending for a period of five years to the customer then we would want the bank to lend to us for an equal time frame," said Sridhar.
Vehicle manufacturers believe that the stimulus package is aimed only at the short-term whereas the focus should have been on the long-term.
Bhattacharjee adds, "I don't think these measures alone can drive the turnaround but these are one of the prerequisites at this stage. For stimulating the demand of CVs, the economic activities in the country are required to be stepped up. Thus, a higher demand for vehicle deployment in areas like construction, goods transportation, bulk cargo handling, mining among others will trigger more purchase of cargo vehicles."