FY23 sales highest ever, PVs lead, 2W lag
In FY23, the sales of passenger vehicles in India seems to have reached an all-time high of 3.9mn units, recovering fully from the Covid induced slow down in the previous two financial years. In the next three years the sale of passenger vehicles in India is estimated to cross half a million mark. Two-wheeler and commercial vehicle sales have been slow to recover. These are expected to reach their all-time high levels in FY24e.
Overall, 21.4million units of automobiles are expected to have been sold in FY23. The number is expected to increase to 24.7mn in FY24e and 28.7mn in FY25, registering an annual growth rate of over 15%.
Besides local sales, Indian manufacturers exported about 3.7mn units of two wheelers and about one million units of other vehicles to other countries in FY23.
Government pushing for faster adoption of EVs
The government has identified automobile carbon emission as one of the primary sources of air pollution in India. Decarbonization of the transport industry is therefore emphasized as a key focus area in our commitment towards climate change goals. Besides, to enhance energy security and stabilize the trade account, it is considered important to reduce reliance on imported fossil fuel for consumption by vehicles with traditional internal combustion engines.
To meet these multiple goals, the government has been pushing for faster adoption of electric vehicles. As per a recent report by KPMG, “The government, in its 2023-24 Budget, allocated INR5,172 crore to Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME-2) subsidy outlay, a 78 per cent jump than the amount earmarked in the previous Budget. The FAME-2 subsidy accounts for 85 per cent of the total Budget allocation of INR6,145 crore for the Ministry of Heavy Industries.” The incentives have resulted in decent growth in sales of electric 2Ws and 3Ws. In other segments the growth is picking up slowly. In FY22, India sold 326,000 electric 2Ws; 178,000 electric 3Ws; 18,000 electric cars and 2,000 electric buses. KPMG estimates the growth has accelerated from FY24e may see acceleration in adoption of EVs in cars, buses and LCVs.
New highways, better roads to encourage road transport
The government has approved a total of 34,800kms of highways to be constructed
Over 12000kms of expressways have been completed under Bharatmala (phase 1) and various balance work NHDP projects till December 2022. Out of this over 25,000kms have been awarded and over 12,000kms have been completed. The remaining 9500 is expected to be awarded in FY24-25. NHAI has also started the process of awarding 8000kms under Bharatmala phase 2A.
Besides this some large projects at state government levels may also soon kick started. As per a recent Kotak Securities report, “Large bids from states are also under evaluation phase such as Hyderabad outer ring road project (Rs70-80 bn upfront payment), city ring road project in Bangalore (Rs100 bn greenfield project), Pune ring road greenfield project (Rs394 bn in packages), Jalna Nanded expressway (Rs190 bn), multi modal corridor (Rs520 bn) and another stretch of Mumbai coastal road (Rs100 bn). Bidding for these projects can be finalized in the next 6-12 months.”
This of course over and above the accelerated road development and improvement. These projects involve several economic corridors, national corridors and expressways. These will ensure accelerated industrial development and faster connectivity.
Obviously, this will lead to much higher demand for automobiles – both personal and commercial in the coming years.
Some observations
Higher demand for commercial vehicles is definitely a direct reflection of the overall economic growth of the economy. But the sharp rise in sales of personal vehicles needs to be evaluated from various viewpoints.
· There could be a strong argument that India still has very low per capita personal vehicle ownership as compared to peer economies. But this argument needs to be tested in the light of the affordability quotient of an average Indian household. Given that over 800mn Indians are dependent on subsidized food, the denominator used for calculating per capita ownership may need some adjustments.
· The mix of personal vehicle sales in recent years has shifted notably in favor of luxury and premium vehicles, while base models, 3Ws and LCVs have witnessed marked slowdown. This could be a sign of rising inequalities and stress in the SME segments.
· In the past couple of decades, cars and 2Ws have seen a sharp rise in commercial use. App based taxis and e-commerce delivery have been two notable segments of demand for vehicles.
· Internal city roads and parking infrastructure has not improved in tandem with the rise in vehicle population. Most Indian cities are crumbling due to overwhelming traffic.
· Metro rail networks in some cities have improved the overall public transport infrastructure. However, poor last mile connectivity has led to much higher demand for 3Ws, especially e-rickshaw, increasing chaos and traffic delays. City bus infrastructure has not shown much improvement beyond a few metro cities.
· The driver training has been mostly ignored. Most drivers and even driving instructors appear to be mistaking “knowledge to operate the vehicle” for “driving skills”. This is leading to a material rise in the cases of road accidents and road rage.
· The management of highways and expressways is extremely poor. Most expressways lack basic facilities. Rescue operations take a long time in cases of breakdown and accidents. The equipment and personnel to regulate errant drivers are grossly inadequate.
· Vehicle ownership is also becoming a serious vanity issue in society. In numerous cases the decision to buy a vehicle is driven by “status” consideration rather than a “need” consideration. Motorcycles and SUVs are becoming basic “dowry demands” in traditional marriages. It is observed that in many cases these demands are made despite poor affordability of the bridegroom to operate, maintain and park the vehicle.
The point is that the rise in personal vehicle ownership may not necessarily be an encouraging sign for the economy and society in all cases. The government needs to do a comprehensive impact analysis and if required consider an appropriate regulatory framework.
