New-found faith

Close on the heels of Telco, Ashok Leyland the other commercial vehicle major has also reportedly hiked production. A move, which has been undertaken largely in anticipation of better offtakes during the last quarter. Undoubtedly, this new found faith, in the possible resurgence of demand has been fuelled by the recent easing of depreciation norms. However, what the incentives really are -- is a stopgap offering for the vehicle manufacturers, from a wretched market. Interpreting them as a possible revival of the commercial vehicle segment would be a mistake. Especially since, factors like the higher depreciation norm (which stipulates a year round depreciation allowance of 40 per cent), while initially resulting in fresh offtakes, would not necessarily lead to a revival as genuine buyers do not look at tax breaks while making a buying decision. However what it could, is eliminate the problem of seasonality in demand. Similarly the 60 per cent depreciation allowance for a new vehicle purchased against the saleof a condemned vehicle should help generate fresh purchases. The government, however, would do well to define a "condemned" vehicle prior to making it a regulation. Largely since a blanket ban of all vehicles over 15 years could lead to a severe backlash. The connotations of which could easily be misinterpreted for cars and two wheelers, which the government would be keen to avoid. More so, long-term demand for commercial vehicles will only increase when the volume of freight moved increases adequately to bridge the supply gap. Also with a turnaround in this sector heavily dependent on an overall economic revival, the prospects for the sector look increasingly bleak. Largely due to the increasing popularity of transportation by the railways, which is only hampered by an inherent lack of wagons.

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