The recent move from Government of India to scrap the Rs 500 and Rs 1000 denomination notes is expected to have an adverse effect on the growth of domestic entry segment two wheeler sales.
This was stated by ICRA as the entry segment two wheeler sales posted a growth of 16 percent during the period of April to October 2016.
Although the usage of unaccounted cash for the purchase of two wheelers is not high as the other sectors the temporary issue of restriction for cash transaction is likely to have an adverse effect on cash-purchase driven two wheeler segment.
According to ICRA, rural market accounts for around 60 to 65 percent of the entry segment two wheeler sales and the majority of purchase happens by means of cash.
Apart from that, the deficiency of cash during the sowing time will have a direct impact on the farm income in the next season. The above 500cc premium two wheeler will also witness the same effect due to demonetisation.
Although ICRA stated that this adverse impact on the entry segment two wheelers will be for a short period of time. The sales volume will come back to its normal state as the demand will revive in the upcoming months.
Senior Group Vice President, ICRA, Subrata Ray said, "The Government's move to withdraw the legal tender character of Rs 500 and Rs 1000 denominated notes could negatively impact demand in the short term for entry level motorcycles that have a sizeable rural customer base."
He added, "Additionally, with restrictions on cash availability and farmers' priorities of deploying the same for sowing requirements of winter crop besides servicing other obligations, the demand for two wheelers may be postponed."
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