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GST The Road Ahead - Trucks Get Stuck on GST Highway

Over 25% of trucks idle amid drop in interstate movement of untaxed and under-reported cargo, leading to a fall in retail freight charges; transporters postponing truck purchases as there's no tax clarity on sale of second-hand vehicles
More than a fourth of India's 6 million-strong truck pool is said to be idle after the goods and services tax (GST) came into force on July 1 amid a drop in interstate movement of untaxed and underreported cargo, leading to a fall in retail freight charges. That's having a knock-on effect on the transport and truck-making businesses, at least in the short term, experts said.
Interstate retail freight rates are down 40-50%, the sharpest decline in over three decades, said SP Singh, senior fellow at the Indian Foundation of Transport Research and Training (IFTRT). Such steep declines in freight rates were seen in 1984, 1988, 2008 and just after the 2016 demonetisation, say transporters. To be sure, transport operators are reporting logistic efficiency gains as those trucks that are running are reaching destinations quicker with border check posts having been scrapped.
India's 6 million trucks range from 5 tonnes to 49 tonnes. Out of the total, 1.3 million have national permits and 1.2 million have permits for their home state and neighbouring states, with 40-45% of them not running currently. Out of the remaining 3.5 million trucks that have permits for their home states, a fourth are idle, added Singh However, in the long run, the in creased economic activity that's expected to result from GST, will mean greater demand for trucks, raising the prospect of a big boost for the commercial vehicle market.
But for now, wholesale and distri bution businesses in particular are hesitant to despatch untaxed cargo under the GST regime. Untaxed invoices dodging the tax authorities have virtually disappeared from freight mar kets, except for a few interstate destina tions in Rajasthan, Madhya Pradesh, Bihar, Chhattis garh, Gujarat, parts of Maharashtra and the North-East, said Singh of IFTRT. That's led to a postponement of new truck purchases and a rise in defaults on hire purchase dues. Non-banking finance companies may hold back on lending, pushing up interest rates.The Indian medium and heavy truck segment fell 32% in the June quarter to 48,493 units due to significant pre-buying in the preceding quarter and delayed pur chases due to uncertainty on GST.
Long-haul transporters renew their fleet every five-six years, with the older trucks going to the secondary market. But transporters have stopped selling older vehicles, as there is no clarity over GST on secondhand trucks, said Naveen Gupta, secretary general, All India Motor Transport Congress (AIMTC). He's sought government support for truckers who can't make loan and insurance payments on account of lower earnings.
The worst hit are small fleet operators and small and medium enterprises (SMEs), which account for almost 40% of the load carried in the country, according to a senior executive at a leading truck maker. Many operated outside the purview of taxes and it will take a few months before the numbers get back to former levels as they become familiar with the GST regime.
However, Jasjit Sethi, CEO of TCI Supply Chain Solutions, one of India's largest transporters, said July has always been a slow month.He expects a hockey stick kind of growth in the next quarter as transporters get more comfortable with GST. “The idle capacity in our opinion is at about 10-15%, which is largely seasonal in nature with a little bit of impact from the GST announcement,“ Sethi said. “The movement is sluggish right now, but with the onset of festive season, we are expecting stronger movement of goods and the freight rates to firm up."
Another truck company executive said his company had started seeing a 10-15% increased efficiency in goods movement, which effectively means the existing fleet can do that much more business.
Vinod Aggarwal, MD and CEO at VE Commercial Vehicles, expects demand to be slow in the coming two months before things normalise in the GST ecosystem.
“There are hiccups expected in the next one or two months,“ he said. “Starting September, the demand may pick up. Customers are in wait-and-watch mode. One after the other disruptions have taken place. Government has to look at ways of boosting private investment and that combined with correction of interest rates will help drive demand fundamentally.“
When buying resumes, transporters will seek quality
“With faster turnaround time and higher efficiencies, people will be more inclined to replace the older legacy trucks with modern trucks, which is expected to gain a larger pie of the market and that in turn will aid growth in commercial vehicle market,“ said TCI's Sethi.
The EConomic Times, New Delhi, 27th July 2017


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