With the Central government giving the nod to the pay hike in the 7th Pay Commission which will benefit lakhs of its employees, expect car and bike makers to make offers to cash in on the disposable income.
Of the 2.78 million passenger vehicles sold in India in 2015, 10-15 percent were from the government employees and pensioners, that's nearly 400,000 buyers. In the current benefit through the 7th Pay Commission, this is expected to affect nearly 10 million people.
The stock market rallied high especially stocks of Hero MotoCorp, Tata Motors and Maruti Suzuki were gainers yesterday when the government announced the 7th Pay Commission details. This clearly indicates there will be an impact on the sales of cars and bikes.
Automobile manufacturers, however, said there will not be an immediate boom in sales simply because the 6th Pay Commission arrears were for 2 years and the 7th Pay Commission will be for 8 months starting 1st January, 2016.
The disposable income is set to increase and this could help customers upgrade the current vehicle and probably help buy their first car.
"Almost 89 percent of the central government employees are in the lowest rung, Group C. Further, 53 percent of the central government employees reside in rural markets and 44 percent of them are under 40 years," stated a report by Motilal Oswal.
Yadvinder Singh Guleria, senior vice-president of sales and marketing, Honda Motorcycle & Scooter India, said, "With the implementation of 7th Pay Commission coinciding with the onset of monsoon and OROP disbursements, we expect the two-wheeler industry growth to go closer to higher single digits. This will definitely act as a stimulant for the two-wheeler industry. Government employees and their families form a large portion of two-wheeler customers and the timing of the release of the money before the festival season may prove to be a turbocharge for the industry."
The demand will come mainly for the entry and mid level motorcycles, gearless scooters, compact sedans and hatchbacks. Hence, companies which cater to this segment will set to gain on sales.
A Maruti Suzuki spokesperson said, "Last year we sold over 200,000 vehicles to central and state government employees. With implementation of the 7th Pay Commission, we are expecting to sell 250,000-plus vehicles in this segment,"
This will reciprocate to increase in number of vehicles on the road in both two-wheelers and four-wheelers.