Money

Shifting gears

  • After years of being centralised in the Capital, Nepal’s auto industry is now seeing greater growth outside Kathmandu
- SANJEEV GIRI, Kathmandu

Sep 12, 2018-

The automobile market, which had long been centralised in the country’s capital city, has recently started witnessing an outward expansion, with vehicle sales outside Kathmandu increasing greatly.

Earlier, Kathmandu alone would account for more than 70 percent of vehicle sales in the country. Now, automobile sales are in a 60:40 ratio with the federal capital still commanding a majority share but with sales growing rapidly in areas outside of Kathmandu. Trade pundits attribute this significant surge in sales to an expansion of business in the districts, an increase in purchasing power and more essentially, the necessity of a personal vehicle for daily operations due to the absence of an efficient public transportation grid. Furthermore, inflow of remittance, which has increased disposable incomes, as well as a surge in real estate values, has also played an important role in the rise in sales.

One neglected aspect, according to traders, is the massive expansion of roads across the country. According to government records, the country has a total of 88,037 km of roads, of which 29,639 km have been developed by authorities at the central level; the remaining 58,398 km have been constructed by local bodies.

“Greater vehicular movement has been envisioned by the government as one of the driving forces that will ensure the country’s economic prosperity,” says Anjan Shrestha, a former president of the Nepal Automobile Dealers’ Association (NADA).  

Shrestha, however, feels that the government hasn’t been as supportive as it could have been, as vehicles are still considered luxury items, not a necessity. The government has imposed taxes as high as 253 percent on vehicle imports, discouraging purchase. “The government considers the automobile sector only as a source of revenue,” Shrestha says. The sector can make significant contributions to the national economy, which is projected to reach double digit growth in a couple of years, according to Shrestha.

Sales volumes in urban centres like Butwal, Pokhara and Chitwan have been surging significantly, followed by locations like Biratnagar, Itahari and Dharan, according to NADA Secretary Anup Baral. Major markets in the west-Dang, Nepaljung and Dhangadi—are also displaying impressive growth.

Despite significant customs duty and poor road infrastructure, this growth in vehicle sales shows that there are few alternates in Nepal to purchasing a private vehicle for increasing one’s mobility, say industry insiders.

The industry is currently recovering from a loan crunch by banks and financial institutions, according to industry insiders. Moreover, Nepal Rastra Bank has now revised its policy allowing banks and financial institutions to extend up to 65 percent of the value of vehicles as credit to loan seekers. This means that those seeking finance to purchase vehicles can make a minimum down-payment of 35 percent of the value of the vehicle; previously, this rate stood at 50 percent.

“Greater availability of loanable funds has helped improved the state of the industry,” says Baral. “Consumers have adapted and financial institutions are also disbursing loans as per the market demand.”

 

The taxman cometh

The current market, however, is down by around 25 percent, as taxes for vehicles have been revised in the budget for the current fiscal year. As per the recent revision, companies bringing in two-wheelers (150cc plus) and four-wheelers (1,000cc plus) will face higher excise duties, resulting in costlier vehicles for consumers. The impact is likely to be severe for two-wheelers, which according to dealers, is the most sought after segment. Two-wheeler registration declined by around 3.5 percent in the fiscal year 2017-18, compared to the same period last year. As many as 341,223 two-wheelers were registered in the country in the fiscal 2017-18. Apart from an increase in taxes, two-wheeler sales in Kathmandu in particular have been underperforming due to a number of reasons including two-wheeler owners transitioning to entry-level four-wheelers, poor road conditions, and increasing pollution.

While Kathmandu is losing its grip on two-wheelers, four-wheelers are growing, with the other major segment—car/jeep/van—witnessing growth in recent years, crossing double digits and hovering at 24,338 in the 2017-18 fiscal year. According to auto-dealers, entry level hatchbacks, sedans and SUVs are all performing well.

“While first-time buyers are opting for entry-level hatchbacks, others are upgrading to entry-level SUVs, many of which have become affordable in recent years,” says Shrestha.

Despite several constraints, along with the 2015 earthquake and subsequent economic blockade by India, the automobile industry has maintained healthy growth. With a three-tier government—central, provincial and local—now in place, the number of vehicles is likely to increase further in the days to come.

“We are really hopeful about the performance of the automobile sector in the current fiscal year,” says Baral. “Vehicles are the engine of economic growth and a prerequisite for mobility. We hope that a three-tier government will have a positive impact on the industry.”

Published: 12-09-2018 08:41

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