Fuel prices, RBI policy to spur passenger vehicle demand

According to Fitch, the rollout of the Goods and Services Tax (GST) in its current form would be largely price neutral because the proposed rates are in line with the existing level of taxes. Fitch expects auto sales to benefit from India’s strong gross domestic product (GDP) growth, which the agency forecasts at 6.9 per cent in the fiscal year ending March 31, 2017, (FY17) and 7.7 per cent in FY18. The credit rating agency said sales of medium and heavy commercial vehicles (MHCV) rose about 30 per cent YoY in FY16, although they decreased slightly by 1.2 per cent YoY during April-September 2016. 

Fitch expects MHCV sales to improve with progress on stalled infrastructure projects and gradual recovery in mining activity after metal prices bottomed out in 2016. The agency said MHCV sales to benefit from buying ahead of an expected increase in prices when new emission standards (BS IV) are implemented from April 1, 2017. Fitch expects light commercial vehicles (LCV) sales to continue to rise, and a significant demand boost if the GST – which will create an unified national market that would allow more efficient movement of goods – is rolled out in April 2017 as planned. Similarly, sales of two-wheelers would continue to rise due to rise in public sector wages and healthy rural spending.