IMPACT OF ECONOMY ON AUTOMOBILE SECTOR

2017 Union Budget initiatives aimed at pumping more money into the rural economy - especially after demonetisation; and a renewed focus on infrastructure development. The latter saw a marginally higher allocation of Rs 64,000 cr for highway development in particular. Another item that has seen mention in previous budgets as well is the specific outlay for the development of coastal roads -for better connectivity to ports and coastal villages. Under the Pradhan Mantri Gram Sadak Yojna roads work accelerated to 133 km roads per day in 2016-17 against 73 km per day during 2011-14. 

These farm-friendly policies that the Finance Minister has announced will really benefit the auto sector. This is even truer in the case of manufacturers of farm equipment like Mahindra and Tafe. Allocation for rural sector for Fiscal Year 2018 is Rs 1,87,200 cr, which is a record, and represents an increase of 24 per cent. The allocation under MNREGA increased to Rs 48,000 crore. This will benefit the two wheelersegment that sees a chunk of sales coming from Tier 3 towns and rural India, like Hero and HMSI. 

While the primary impact of demonetisation on the auto industry was really seen on rural sales, these measures will help overcome some of that. The rural thrust has helped makers of LCVs and mini trucks like Eicher, Tata and Mahindra for the same reason, with help of a good monsoon and rising profits in the agro-economy.

Minister Jaitley's tweaking of tax slabs will also likely benefit the two wheeler sector, as income below Rs 2.5 lakh is now non-taxable, and income between Rs 2.5-5 lakh now sees the tax outgo halved to 5%. This increases the disposable income in the hands of buyers. It will allow more buyers to hasten their purchase decisions. It will increase the demand for second hand two wheelers and cars, which will impact new vehicle sales too.

Even the car makers are expecting a positive push to sales though. The Income tax rate cut from 10% to 5% for individual tax payers earning under Rs. 5 lakh per annum will create a positive sentiment among likely first time buyers for entry level and small cars.

GST also proved to favour auto makers with the tax burden reducing for all the segments. This has already pushed the sales up for car makers. However, the recent decision of GST Council to increase cess for luxury cars to 25%from earlier 15% will impact luxury auto-makers.