NBFCs, which finance purchases of commercial vehicles, to get additional line of credit from banks.
Commercial vehicle makers, including Tata Motors, Ashok Leyland and Eicher Motors, can look forward to a slight upswing in demand as the second fiscal stimulus package announced today is expected to improve liquidity.
In an effort to address the liquidity concerns of the manufacturers, the government today said an arrangement would be worked out with leading public sector banks to provide a line of credit to non-banking financial companies (NBFCs) just for commercial vehicles (CVs).
Abhay N Firodia, chairman and managing director, Force Motors, said: “Availability of finance was an issue. There have been many cases where NBFCs did not honour the delivery orders due to tight liquidity. This package will clear all such large pending orders. The move will hopefully restore confidence among buyers.”
The sector, considered a symbol of a nation’s economic health, has been under tremendous pressure in recent months as manufacturers like Tata Motors, and Ashok Leyland had to shut plants to get rid of their excess inventory.
TT Srinivasa Raghavan, managing director, Sundaram Finance, said: “It’s nice to know that NBFCs have been recognised for their role in capital formation. But we are cautious what this short-term measure will achieve. Unless you address the issue of over-capacity in freight, the demand for CVs will not pick up. You are not going to increase the demand for CVs in the short term just by pumping in money. The overcapacity will go once overall growth sets in.”
However, a senior executive from Mahindra Finance said, “We have to wait for the details. It is essential to also know at what rate banks will lend to us. Unless CVs are treated as a priority sector, we may not see a huge impact. However, it is a welcome move by the government.”
The government also announced a depreciation of 50 per cent for CVs bought from January 1 to March 31. This means buyers can now show a depreciation of 50 per cent for the year as against the usual rate of 15 per cent, thereby claiming a higher tax benefit.
Sanjay Kapadia, executive director, PricewaterhouseCoopers, said, “Both manufacturer and buyers will benefit.”
However, experts see a positive impact only in the short term as the time-frame to buy a CV is limited to three months. “This is not a long-term solution. It will not dramatically alter persistent sluggish sales. It could have a marginal impact”, said Raghavan.
Industry players are expecting a revival in demand latest by October when the cyclical sluggishness will also be over. R Seshasayee, managing director, Ashok Leyland, said, “We see demand picking up in the second half of 2009.”
The government also announced that states would be provided assistance under the Jawaharlal Nehru National Urban Renewal Mission for buying buses for their transport systems. The scheme, which will be a one-time measure up to June 30, will be announced shortly, according to the government.
