(Mint file)
(Mint file)

Higher depreciation, govt purchases to boost vehicle sales

  • Sales of automobiles have been on a decline for the past year, leading to thousands of job losses
  • Consumption demand in the economy nosedived after the bankruptcy of IL&FS

New Delhi: To stimulate demand for automobiles and arrest the precipitous decline in sales the Union government on Friday announced a slew of measures like mandating government agencies and departments to replace old vehicles, increasing depreciation on new vehicles for commercial fleet service providers, urging banks to make automobile loans cheaper and increase credit availability to non-banking finance companies.

Finance minister Nirmala Sitharaman also assured buyers and manufacturers that vehicles compliant with Bharat Stage IV emission norms registered before March 31, 2020, will be able to run for the entire registration period or the life of the vehicle.

As consumption demand in the economy nosedived after the bankruptcy of IL&FS, sales of automobiles have been on a decline for the past year, leading to thousands of job losses as automobile manufacturing companies and component manufacturers reduced production.

In a significant announcement, the Union government removed the restriction on its departments from buying new vehicles and urged them to replace existing vehicles. Also the depreciation on new vehicles for buyers has been increased to 30% from the existing 15%.

“Government agencies will be asked to replace their old vehicles and this, I think, will push sales of automobiles and components manufacturers will also benefit. We are also working on a scrappage policy and I am not announcing it since we don’t have the infrastructure required to scrap vehicles," said Sitharaman during a press conference conducted on Friday.

The finance minister also mentioned that banks will be asked to reduce the rate of interest on automobile loans and the infusion of 70,000 crore as promised in the budget will lead to more credit for NBFCs.

The announcements by the government may not be able to arrest the fall in vehicle sales in the short term, but will be able to clear doubts in the minds of buyers regarding BS IV vehicles.

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