The reduction in petrol prices on account of excise duty cut by the Central government is expected to provide a much-needed respite for the two-wheeler segment. 

While the rural economy is showing signs of revival, petrol price reduction, along with the opening up of schools and colleges, should augur well for 2W replacement demand. 

“The excise duty cut on petrol and diesel is a positive step as it can ease inflationary pressures. It can stir positive sentiments for automobile consumers and boost consumption. Rural demand is slowly picking up and this step should boost demand as well,” said Suraj Ghosh, Director, Mobility, S&P Global.    

Moreover, there are many prospective buyers who are holding up or have been delaying their purchase decisions due to high ownership costs, so there’s a possibility that it gets unlocked and further boost sales, he added. 

Also, if the States follow it up with cuts in VAT, then it will provide strong tailwinds for the two-wheeler sales. 

In the post-Covid phase, a gradual demand revival was witnessed in passenger vehicles and commercial vehicles. But the two-wheeler segment didn’t exhibit a sustained recovery amid a favourable rural economy. 

Demand revival

A huge increase (about 25 per cent) in the acquisition cost of new two-wheelers and a sharp increase in petrol prices proved to be major dampeners for the demand revival in the two-wheeler segment.  

“The cost of ownership has risen significantly because of tighter regulatory norms (safety and BS-VI) and price hikes by vehicle makers to offset higher input costs. This has materially dampened consumer sentiment and offtake of lower-priced two-wheelers.” pointed out by Crisil Research. 

As a result, the domestic two-wheeler volumes contracted for a third consecutive year in FY2022. 

However, a low base and a good wedding season (which drives demand in northern India) have supported the recovery in two-wheeler volumes in the past two months despite continuing supply chain challenges. Wholesale volumes were higher by 15 per cent at about 1.2 million units in April 2022. While retail volumes were also higher in April, they were still lower than the pre-pandemic levels. 

The reopening of educational institutions and the return to office by workers in the corporate world has boosted sentiments and thereby supported the demand recovery, particularly in urban centres. 

Industry representatives and financiers state that the rural economy is showing signs of recovery with many favourable factors. While this will augur well for the two-wheeler sector, in particular motorcycles, the fuel price cut will boost the sentiments further. 

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