Ramesh Kumar*
Over the past few days, I have been poring
over the “Report of Working Group on
Road Transport for the Twelfth Five Year Plan (2012-17)” released recently. It is an interesting document and
felt I will not be able to do justice to this precious tome in one single long
piece. Moreover, to retain the attention span of potential readers, the
offerings have to be in small doses. Like it is said that even the tastiest
pizza has to be cut into small pieces to be cherished. Small indeed is
beautiful and meaningful. Here is the Fourth
Installment. Check out http://goo.gl/2KeOU
to read the First Installment; access http://goo.gl/4x073 to read the Second Installment and http://goo.gl/TmWXJ to read the Third Installment.
Fleet
modernization assumes importance if India has to improve efficiency all-around.
Considering the fact that the fleet owners, by and large, are small and
marginal operators with the fleet strength of 5 or 10 and it is still an
unorganized sector, they need financial incentives to buy new vehicles. Bank
loans are hard to come by, forcing them to knock on the doors of non-banking
financial institutions where the cost of borrowing is pretty stiff. Therefore,
the Working Group’s attention to this issue is noteworthy.
It says, “some options to modernize the vehicle fleet in the country by replacing the older vehicles with newer ones with better technology and lower emissions need serious consideration. These include incentives to owners of commercial vehicles older than 15 years to modernize their fleet, encourage owners of private vehicles older than 15 years to replace their vehicles through a suitable tax regime, a vehicle recycling policy and drastic improvement in the inspection and certification regime.”
Does it have anything specific in mind? It does. Rightly it hits on the issue of taxation as one of the palliative tools to weed out older trucks from highways. “Vehicle taxation is road damage-related but levied on the basis of gross vehicle weight rather than on potential axle loads, resulting in under-taxation of two axle trucks compared to multi axle vehicles or MAVs. Since the former is a major source of revenue to states, there is need for its rationalization, to ensure that the tax burden is distributed fairly among different types of vehicle according to Passenger Car Units as well as the road damage caused by each type of vehicle, according o the equivalent standard axle or ESL. Motor vehicle taxes could be used to encourage the plying of MAVs,” it says.
Dwelling on
MAVs, the Working Group adds: “MAV (gross tonnage including weight of the truck
of over 16.2 tonnes) are cheaper to operate compared to smaller trucks i.e.
medium commercial vehicles and light commercial vehicles, by over 25%. In fact,
cost per ton KM for 25 ton truck and 30 ton truck is estimated at 85% and 75%
respectively relate to a 16 ton truck, according to a McKinsey 2010 report. The
incremental cost of a MAV can be recovered in less than three years;. Measures
to promote the use of MAVs could be considered including excise duty reductions
for MAVs similar to small and fuel efficient cars, stringent monitoring of
overloaded trucks and enforcing pollution and safety norms, which could lead to
retirement of old trucks.”
It is pertinent here to draw attention to Ernst & Young’s latest report on 'Mega trends shaping the Indian commercial vehicle market’. It says that the Indian commercial vehicle market will double to 1.6 million units in next five years thanks to the increase in infrastructure spend, rapid urbanisation and entry of major multinational players in the country.
TATA Motors & Ashok Leyland continues to dominate the domestic truck scene in India with a combined market share of over 85-90% and rest of the players making up the rest of the pie. According to the report, the stakeholders across the Indian CV industry are likely to be impacted by rapidly changing events right from the operating environment, fleet operator/ manager preferences, competition, distribution channel and also supply chain.
Moreover, the development of road infrastructure enables OEMs to introduce higher power vehicles. By 2012, the modernization of roads under the NHDP (National Highway Development Program) is expected to involve a total investment of USD 47.2 billion." The report identifies six mega trends that will impact the revenues, costs and profitability of participants in the Indian commercial vehicle industry.
E&Y report said that going ahead fleets will focus on capacity utilisation to reduce operating costs and diversify customer base. The fleet operators will opt for higher tonnage multi axle trucks and rely on usage of telematics and will focus on the total cost of ownership.
The rapid urbanization, improving road infrastructure and regulatory policies will influence CV buyers and OEMs. By 2050, at least five states are expected to be predominantly urban and 12 cities in India with population of more than 2 million are expected to get metro rail.
Global majors will redefine brand position in the market while domestic companies will build R&D competence and optimize costs through outsourcing and modularization. The key stake holders, suppliers will improve local capacity and invest in R&D while improving operational efficiency and developing an aftermarket proposition. The companies will tackle manpower, economic and supply chain risks through skill development, production localization and supplier collaboration
The Ernst & Young study concludes that the competition among commercial vehicle manufacturers in India is expected to intensify as international OEMs raise the bar in terms of technology, quality, durability and reliability; while domestic OEMs invest to upgrade products and technology, strengthen dealer relationships and loyalty, reinforce distribution networks and build new competencies to defend their market shares.
All said and done, exciting times are ahead for India.
(To be
continued)
·
Author of 10,000 KM on Indian Highways, Publisher
of Supply Chain India and Consulting
Editor of SAARC Journal of Transport
