Speaking to CNBC-TV18, Vinod Aggarwal, Chief Executive Officer- Commercial Vehicles, Eicher Motors, says the additional levy of "environmental compensation" will increase prices of the trucks.
The National Green Tribunal (NGT) has levied a "environmental compensation" charge on heavy vehicles that will enter Delhi. This green tax will have to be paid in addition to the toll fee.
Speaking to CNBC-TV18, Vinod Aggarwal, Chief Executive Officer- Commercial Vehicles, Eicher Motors, says the move will increase prices of the trucks.
Given the heavy traffic prone capital, Aggarwal expects trucks to pay upto Rs 4.5 crore as the green tax on a daily basis.
Below is the verbatim transcript of Vinod Aggarwal’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: You have also reported very good sales in the month of September so I will come to that in a bit but before that just of the news flow that we got this morning with respect to this green tax how much of negative would it be for a company like yours and on sentiment as well?
A: This additional environmental compensation charge which the National Green Tribunal (NGT) has proposed for NCR that is of course, the cost will go up because they are proposing to levy Rs 500 per truck to Rs 1,000 per truck on all the trucks irrespective of the years of the truck. So, this in a way increase the toll tax so this will increase the cost.
It has been imposed in addition to the ban on more than 10 years old vehicles. This type of sudden impositions creates negative sentiment that is the only way, ultimately, the transporters will pass on this cost increase to the consumers.
Sonia: In a product, that is of a higher value Rs 700-1000 increase will it really impact sentiment in the longer term?
A: If you look at the total – everyday around 60,000-70,000 trucks enter Delhi. Now if you take say an average rate of Rs 750 per truck it comes out around Rs 4-4.5 crore per day. So, that is the additional cost that will come on Delhi consumers – Rs 4.5 crore per day.
That is the impact and then taking a cue from this even other cities may also impose this. So, you are increasing basically the cost. Whereas, the issue to solve this problem of pollution, you are already putting this ban of more than 10 years old vehicles. So, I say these types of things, it should be done after discussion with the transporter association rather than putting it suddenly like this.
Latha: Is there no caveats to the order that you change your emission rules or your fuel? It is put on everybody without later hindrance or can you all improve your vehicles in some fashion to avoid this tax?
A: No, emission norms, that policy is already in place. Like from October 1st already in the Northern part of the country the Euro IV norms have come in to place. In a phased manner BS-IV will become applicable throughout the country from 01/04/2017. Then subsequently there is also a road map available for Euro V and Euro VI.
So, that way the initial norm policy is in place and the industry is working on it and that is in any case going on. However, this is an additional thing in addition to the emission compliances which are already happenieng.
Sonia: Can you tell us a little bit about the volumes now. The month of September has been quite strong for commercial vehicles (CV) like yours. You have seen a growth of almost 28 percent year-on-year and 14 percent on a month-on-month basis. Just take us through the different pockets. Which are the pockets that did well between heavy commercials, light commercials and buses?
A: Month of September was in fact exceptionally good for the industry I would say. If you look at the heavy duty trucks the growth was almost more than 50 percent. After a longtime we could see the heavy duty industry at around 25,000 units per month. Even the light and medium duty trucks industries which is 5-15 tonne trucks that also has grown by more than 20 percent. For last two months it is growing by 20 percent plus.
Even though on year to date (YTD) basis for first nine months light and medium duty growth is still around 7 percent as against growth in the heavy duty trucks which is at 39 percent for first nine months. Buses also they are growing by around 20-25 percent every month. So, overall I think all these segments have grown in the month of September which is very good for the industry I would say.
Latha: Do you see the light and medium also getting more traction. They have been the lower performers compared to the others?
A: Yes, definitely and now for the last two months they are doing better. In fact if you look at the data up to July for several months it was almost flat. There was no growth; it was almost 0.2 percent growth. August and September we have seen a growth of 20 percent plus in 5-15 tonne truck industry.
So, if this continues definitely we see good sign and let us hope that this continues. As it is there is always a lag between the heavy duty trucks growth and the light and medium duty truck growth because if the heavy duty trucks are growing light and medium duty also have to grow that is the natural tendency. Whereas this time the lag has been much bigger. The lag has been larger which is around six to nine months but this time it is more than a year.
Sonia: Can you tell us about the bus segment because in the last quarter Eicher Motors actually outperformed the industry with a 23 percent growth in the buses segment. You saw a market share gain as well. What is the latest, what is the visibility of orders that you are getting in that segment.
A: The bus industry is basically also a seasonal because from February till July and August there is a school season. All these schools replace their fleets or add new fleets during this period when the new session starts. We have seen very good growth in that period. Going forward I think the growth is going to be led by the new orders which are going to be placed under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme or the state transport undertaking orders.
However, on the other hand when this new government they replaced this earlier scheme Jawaharlal Nehru National Urban Renewal Mission (JNNURM) with AMRUT there has been some disconnect. The things have slowed down a lot. Because the funds those were getting released under the JNNURM when they changed over this to AMRUT those funds have been blocked. So, this change over has not been smooth as a result the execution of this entire renewal program with the new buses has slowed down even though there were orders from state transport undertakings or they had floated tenders and they had also finalised this.
However, they have not been able to execute them because they don’t get the funds under this scheme and that is a big setback. I would say government should expedite that under the AMRUT scheme the funds are not blocked which earlier they were flowing in the JNNURM.
Sonia: Any idea on, any indication on when these funds could be unlocked and when the first order flow will start coming through from the AMRUT scheme?
A: The orders are already there which were earlier placed under JNNURM but the state undertaking of the cities they are not able to execute these orders because they say they don’t have funds. Like we have got the orders, we have manufactured buses and they are lying with us because the bodies are not picking up. They are saying that we have not got the funds.
Latha: The money has vanished from JNNURM but it has not come to AMTUR account is what you are saying?
A: This change over has not been smooth even though the intention must have been very good from the government but the changeover has not been smooth.
Latha: What is your sense about the second half? Will it be as good as the first half, will it be better in terms of demand? What are your dealers telling you?
A: The second half, again there are two to three things which we have to understand. One is the interest rates like this I was very delighted that Reserve Bank of India (RBI) finally, in the last policy they have reduced the rates by 50 basis points. However, still I would say that is not enough. If you go back in July 2009, between July 2008 and July 2009 the drop in benchmark rates was from 9 percent to 4.75 percent. Just in period of nine months it dropped by 3.25 percent. Whereas we are taking lot of time to improve the interest rates.
If you look at the global scenario, the commodity prices, the prices are going to remain down because the entire global demand is not there. This steel demand or the cement or the iron ore all these various commodities are having tremendous pressure. Now why are we worried about inflation? Inflation if we have to manage well we have to manage the supply side better.
Latha: Under the circumstances what so you think will be the second half of demand?
A: Second half demand, I would say that let us have more interest cost reductions and then infrastructure investments should also happen because there again, there has been not very good progress in the execution.
In the period up to September the new regulations are becoming applicable from October 1st like for example – BS – IV is going to be applicable in various states.
Now there was some preponement that has happened so to that extent there may be even some negative impact. That is why I am saying it is very important for the industry that all these macro steps are taken like for example the interest rate reduction as well as the infrastructure investments so government must make this happen.
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