Commercial vehicle sales are expected to decline by more than one -third in the current fiscal and industry needs demand revival, a report said on Friday.

The domestic commercial vehicle (CV) industry continues to exhibit cyclicality as witnessed in the last two decades but the slump witnessed in fiscal year 2020 was sharp with sales volume declining 29 per cent year-on-year (YoY) to 720,000 units, Ratings agency Care Ratings said in its report.

During fiscal year 2020, in terms of unit volume, M&HCV (medium and heavy commercial vehicle) accounted for 31 per cent of the total CV sales, while LCV (light commercial vehicle) accounted for the rest of sales in the domestic market.

Also, while M&HCV sales declined 42 per cent, the LCV segment volume was 20 per cent lower during the previous fiscal over fiscal year 2019, as per the report.

The industry is staring at further de-growth in fiscal year 2021 as Covid-19-led economic downturn adds to the negative sentiment, it said.

"As the macro numbers continue to disappoint and likely to weaken further, it is threatening to take the CV industry on a prolonged slowdown. For fiscal year 2021, overall domestic CV sales are expected to decline by 30-35 per cent with a more severe hit in the M&HCV segment than LCV segment," Care Ratings said.

The contraction in the LCV segment is expected to be limited as the demand from rural and semi-urban markets are expected to recover faster on account of higher agriculture output on the back of good monsoons during the current year, it added.

The overall volumes are expected to gradually pick up during the second half of the fiscal from the current lows; however, any meaningful demand recovery is expected from fiscal year 2022 only, it stated.

While this is likely to impact the financial performance of various domestic CV players, majority of them are better placed to manoeuvre the downtrend than in the past, it said, adding, the industry needs revival measures that address both short-term and long-term demand.

"Despite no direct stimuli to boost CV demand being announced under the 'Atmanirbhar Bharat' package, reforms being carried out in certain sectors are expected to improve CVs demand in the medium term," Care Ratings said.

Measures including commercialisation of coal mining, introduction of seamless composite exploration-cum-mining-cum production regime for minerals, liquidity boost to NBFCs (non-banking financial institution) and measures to improve agriculture and allied sectors infrastructure, could have a positive impact on CVs demand in the medium term, the report stated.

"Demand revival could be hastened in case of implementation of long due scrappage policy, reduction in GST rates from the current 28 per cent along with substantial economic measures including government's push towards additional infrastructure projects," the report said.

With the outbreak of COVID-19 pandemic, economic activities across the country remain disrupted since March due to lockdown.

During the April-June 2020 period, domestic sales were negligible due to lockdown, it added.