2020 was a year that is forever etched in all our minds. The
COVID-19 pandemic forced the Indian government’s hand to put the
country in a nationwide lockdown for several months spelling doom
for the economy’s growth. India’s GDP contracted 8.2% in 2020 as
industries struggled to make ends meet amidst the ever-changing
lockdown norms, unavailability of workers, restriction on movement
of personnel and material. The Medium and Heavy Commercial Vehicle
(MHCV) industry was one of the worst affected industries in the
country as April 2020 saw the industry’s sales volume at zero for
the first time in its reported history. The industry did start
recovering in the second half of the year with the third quarter
more than quintupling the volume as compared to the second quarter.
The fourth quarter yet again doubled the volume from third quarter
but even with all these momentous growth figures, the Indian MHCV
market ended 2020 at less than half of its 2019 volume, which
itself was 26% below the 2018 peak. The Indian MHCV industry sales
stood 152,000 units in 2020 as opposed to 333,000 units in
2019.
2020 is now in the past, economic activity has started to pick
up pace and so has India’s MHCV market. As per the latest Society
of Indian Automobile Manufacturers (SIAM) data, the first quarter
of 2021 saw 57% higher MHCV sales in India as compared to the
previous quarter, but all is not as rosy as it seems. Recently,
since mid-April 2021, India has seen a rapid resurgence in COVID-19
cases. The second wave of COVID-19 has already seen daily cases
soar to over four times the peak of the first wave but is now
starting to show signs of a slowdown as of 11th May 2021. The
second wave has forced several state governments to announce
lockdown measures for up to 4 weeks and this has also resulted in
plant shutdowns at various OEMs. These lockdowns will bog down the
economic growth in the immediate future and we estimate the economy
to contract this quarter but overall a healthy year-over-year
growth of 9.6% will help the economy regain its 2019 size.
Industrial activity in the country fell more than 11% in 2020 but
is estimated to regain its 2019 levels in 2021. The above-mentioned
second wave is sure to delay the recovery of the sector and we
estimate some pent-up demand to spill into 2022 as well.
Apart from economic factors, there are several market forces
defining the future of India’s MHCV market, the most noteworthy of
them are as follows:
- India’s spending on infrastructure and
construction has been the key driver for growth in the
heavy-duty truck space and it dropped by almost 20% in 2020. Going
forward we estimate India’s construction spending to grow 8% in
2021 and another 6% in 2022 as the Government of India has already
announced several large infrastructure projects to the tune of INR
2,00,000 crores (USD 27.4 billion). - E-commerce Industry is another freight
generating industry and has led the growth of medium-duty truck
segment in India. India’s e-commerce industry is expected to be one
of the fastest growing across the globe and the current
government’s push on initiatives such as “Digital India”, “Make in
India” and others will promote e-commerce activities in India.
Another key development in the process has been the removal of the
limit on FDI in the B2B e-commerce marketplace. We estimate India’s
e-Commerce industry to topple its US counterpart and become the
world’s second largest by 2034. - Linked to the above-mentioned factors, India’s land
transport demand is estimated to grow more than 50% over
the next 5 years. The government’s push to develop better
infrastructure is starting to bear fruit as India’s highway network
has grown at a CAGR of 21.4% between 2016 and 2019 and is estimated
to grow at a similar rate until 2025. - By 2022, the average age of India’s MHCV fleet will be
8.2 years and over one 6th of all vehicles plying on Indian roads
will be over 14 years old. An ageing fleet not only is
more polluting but also lacks essential safety features such as ABS
and seat belts. We estimate that several regional directives
banning the use of older highly polluting vehicles will help push
the market for new MHCVs higher and push the replacement
demand. - Government policies and regulations have been
some of the most prominent factors in defining the Indian MHCV
market’s growth in recent years. GST rollout, axle-load norms
revision, BSVI rollout are some of the recent key events in India’s
MHCV industry all of which had a huge impact on the market. In the
coming years the government has readied two more such policies to
help the market grow, the scrappage policy and production linked
incentive (PLI) plan.- The scrappage policy will be rolled out in a phased manner
starting with the first targeting government owned commercial
vehicles (incl. trucks and buses) coming out in April 2022 while
the second phase targeted at privately owned HCVs to start from
April 2023. The government has announced incentives for owners
scrapping their old trucks that include OEM discounts, and taxes
and registration fee waivers. The policy will help create new jobs
and reduce costs for manufacturers by way of recycling metals and
other materials. - The PLI program is aimed at promoting India as a manufacturing
hub for global automotive manufacturers by incentivizing them for
increasing production levels. The government has announced a
package of over INR570 billion earmarked for the auto industry
under the program. The program will help reduce India’s import bill
as well as increase exports out of the country while creating new
jobs as well.
- The scrappage policy will be rolled out in a phased manner
IHS Markit estimates India’s MHCV sales to grow over 35% in 2021
exceeding 210,000 units. Heavy-duty trucks which account for over
55% of the sales in India are estimated to continue their dominance
while buses, the worst-affected segment in 2020, are estimated to
be the fastest growing due to low base effect. Tata and Ashok
Leyland will continue to dominate the market, but Bharat Benz and
Eicher are making strong strides and will pose a serious challenge
to the stalwarts in the years to come.
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