Budget Impact Analysis – Auto Sector

By Dhanyakumar M H

Expectations from Industry:

  • Cut in corporate tax from 30 to 25%
  • Implementation of the vehicle scrappage scheme
  • Incentives for hybrid and electric car production to be extended
  • Removal of connection between size of car and tax
  • Push for infrastructure to offer a quality road in the long run

What Budget has to offer?

  • Personal Income tax:
    • Increase in zero income tax slab from 2.5 lakh to 3 lakh
    • Reduction in income tax from 10% to 5% for income between 2.5 to 5 lakh

Increases in household disposable income. Provides a boost to first-time auto buyer preferably two-wheeler or entry level car.

  • Infrastructure development:
    • Better the infrastructure in the country, is an incentive and encouragement for Auto Industry
    • Budget is seen as a pro-development and this would boost the sales of MHCV, HDCV and heavy equipment
  • Goods and Service Tax:
    • Implementation of GST is confirmed, but there was no message to Auto industry regarding the removal of the link between size and taxation.
  • Rural Income and Agriculture:
    • Mission of doubling farmer income would help increase the disposable income
    • Interest waiver for 60 days due to the impact of demonetization is a welcome move
    • Expected to see a 4.1% increase in Agri output

Increase in rural income would help two wheelers, tractor and entry level car manufactures. It may also help an LCV segment of commercial vehicles.

  • Market Reaction: Advance in stocks
    • Bajaj Auto, Hero Motocorp and TVS Motor
    • M&M, Maruti Suzuki, Eicher Motors, Tata Motors and Ashok Leyland
    • Escorts and VST Tillers
    • Auto Ancillaries are also shown an advancement in stock prices

Conclusion:

Overall the budget has not met the expectation of the auto industry and there was no surprise as well. But the move towards reducing personal income tax and push for rural India is welcomed. As this would increase the disposable income, industry expects an increase in sales of two wheelers, tractors, entry level cars and finally MHCV & HDCV because of push to infrastructure development. Industry is hoping to see more revival post GST implementation as there will be zig-zag in tax structure.

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