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Small mobility solutions hit the permit speed bump

MURALI GOPALAN | Updated on January 23, 2018

R Ramakrishnan, Tata Motors’ Commercial Vehicles Business Unit

Minivans like Magic are not realising their full potential across the country

They are ideal mobility solutions for India’s crowded cities and towns. Small vans such as the Tata Magic and Mahindra Maxximo are easing the pressure on public transport by ferrying groups of people at affordable fares.

Just when you think demand for these minivans is going through the roof, here comes the shocker. Their numbers actually fell by nearly 60 per cent last fiscal, reveals R Ramakrishnan, Senior Vice-President of Tata Motors’ Commercial Vehicles Business Unit. Now how on earth did this happen?

The biggest impediment for these vans is that they do not have the right kind of permits to operate in metros. As a result, they are fined or seized by the police and the number of defaults has just been growing by the day. Consequently, there are not too many takers when it comes to financing these operators.

Road blocks

Ramakrishnan believes it is time for state governments/district collectors/local authorities to help out by providing proper permits. It will also be welcome news to commuters who desperately need more of these mobility solutions. Funding, he reasons, will also come back once permits are in place.

There are no two ways about the fact that these minivans have a profitable business model even though permits remain the biggest obstacle. As a result, they end up operating on wrong routes. According to Ramakrishnan, small commercial vehicles need a stage carriage permit but get a contract (carriage) permit where a person is picked at point A and then dropped at point B. No pick-ups can be made between these spots whereas a bus with a state carriage permit can stop at several places.

“People need low cost mobility solutions and if you get appropriate permits, private entrepreneurs can flourish as also the paying public,” says Ramakrishnan. Once this is in place, state governments do not have to spend money on less economic routes and can focus on larger routes for their bus fleet.

Wherever this has been implemented it has worked well as in the case of Madhya Pradesh, Alwar and Guwahati. The Society of Indian Automobile Manufacturers has also taken up the issue with the Ministries concerned. “We are a large country and people want to travel more with better road connectivity. In the process, companies can unlock a lot of business going forward,” says Ramakrishnan.

Smaller solutions

It is of course a moot point when other states will quickly come together and work out a pragmatic solution in providing minivans with stage carriage permits. As more and more people migrate to cities, there is only so much that public transport in the form of buses, trains and metros can cater to. Smaller and more affordable mobility solutions can better fill this void. According to Ramakrishnan, things have not been so great in the small goods carrier space (two tonnes and below) either though the fall is less steep at 22 per cent. Most operators are first time buyers who have never owned a vehicle before. Transportation is a new area of business for them and when the slowdown happened, they defaulted on repayments and vehicles were recalled.

Today, lenders are extra cautious with new borrowers of small goods carriers and fund only up to 75 per cent of the vehicle which means the down payment component has increased substantially. “While there are people interested in buying vehicles, they cannot access finance which means the turnaround for this sector will take time,” says Ramakrishnan.

From his point of view, the good news has come from medium and heavy commercial vehicles which have grown by nearly 35 per cent last fiscal, though nowhere close to the peak levels of 2011-12. While intermediate CVs (7.5 to 16 tonnes) and pickups (2-3.5 tonnes) saw a drop of 10 per cent and eight per cent respectively, growth was flat in the case of LCVs (3.5-7.5 tonnes).

Ramakrishnan says large operators are in replacement mode for their trucks. Despite the 50 paise diesel price hike for several months in the recent past, freight rates have been quite steady. Today, diesel is relatively cheaper despite the latest hike and freight rates have been stable with better load availability and truck utilisation.

Lots of finance companies are also willing to risk lending to large fleet operators which has helped fuel the turnaround for medium and heavy CVs. For smaller operators, it has been a bit of a struggle here as they are dependent on market loads. Further, with payment defaults, finance companies are more cautious in lending. As a result, intermediate and light CVs will take time to recover.

Published on May 07, 2015

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