Infrastructure And Rural Spending To Boost Auto Sector

Finance Minister Arun Jaitley in his budget speech gave more emphasis on improving sentiments rather than giving direct benefits to manufacturers to lift the auto sector which turned sluggish post-demonetization.

The minister allocated Rs 3.9 lakh crore towards infrastructure and Rs 64,000 crore for the further development of National Highways. He also allocated a record Rs 1,87,200 crore in FY 2018 for rural sector, up 24 per cent from the previous year.

Hyundai Motor India's senior vice president (Sales & Marketing) Rakesh Srivastava said, “The Union budget will give boost to economy especially rural with focus on infrastructure creating a robust business environment thus helping auto industry and positively contribute to National GDP,”

Sumit Sawhney, MD, Renault India, said, “Infrastructure focus including that on rural road development will lead to faster and more effective mobility solutions, which is positive news for the automotive segment.”

Subrata Ray, Group Head, Corporate Sector ratings, ICRA Ltd said, “Continued focus on infrastructure would be a positive for the commercial vehicle industry.”

In other major announcements, the farm credit target has been raised by Rs 1 lakh crore to Rs 10 lakh crore in Budget 2017-18 in order to increase credit flow in the agriculture sector.

Abdul Majeed, partner and auto expert at PwC, said, “Overall it’s a positive budget for the auto industry. Spending on Infra and rural sector is likely to lift rural sentiments which in result will increase demand for two-wheelers and commercial vehicles.”

Another major announcement which may boost demand is lowering of tax on income lesser than Rs 5 lakh. Jaitley proposes to reduce income tax on earnings upto Rs 5 lakh to 5 percent from 10 percent previously. The reduction of income tax for companies below Rs 50 crore is boost the auto sector.

“These steps will lift purchasing power of many buyers. Critically we needed demand creation in the auto sector and this has been the main focus of the budget,” Abdul Majeed said.

Ray of ICRA said, "The reduction of income tax for companies below Rs. 50 crores is a positive, though the industry would have expected some relief on corporate tax for larger entities as well."

Rattan Kapur, president at Automotive Component Manufacturers Association of India (ACMA) said, "ACMA welcomes the reduction in corporate tax on MSMEs giving them the much needed encouragement and relief; over 70 per cent of the companies engaged in the auto component sector are small and medium enterprises."

Kapur added that with growing content of electronics in vehicles, most of which is imported, it is encouraging to note that the budget has an increased the allocation of Rs 745 crores for electronics manufacturing.

However, there was no announcement regarding GST, which the industry was anticipating most. Also the budget had no mention to lift the ailing electronic vehicle segment and the scrappage policy.

Sawhney of Renault said, "One of the focal decisions that the automotive sector was looking forward to from this budget was the GST roll-out, and how different vehicle categories will be taxed. Another area which deserved attention was the vehicle scrappage policy. A clear roadmap on these policies would have given a boost to the industry."

He added that although the budget didn’t have much for the automobile sector, they are hopeful for some pro-business policies on a continual basis to benefit the industry.

Ray of ICRA said, "Also there was no relief announced for Electric Vehicles, which was a demand for some in the industry. Reduction in personal income tax is a positive, though overall relief is relatively modest."