Indian auto industry to augur well with FY2014-15 budget

Interim Budget presented in February 2014 resulted in excise duty reduction on small cars, two-wheelers (2W) and commercial vehicles (CV) to 8% from 12%,  mid-segment cars to 20% from 24%, and large-segment cars to 24% from 27%.  Excise duty on sports utility vehicles (SUVs) is reduced to 24% from 30% to bring it at par with large-segment cars.

Indian auto industryApplicable at first for a limited period till June 30, 2014, on  June 25, 2014, the Central Government extended excise duty concession on automobiles till year end. No separate announcement was made in the Finance Minister’s budget speech his week. The move though expected to support sales volume growth through 2014 needs an impetus from further signs of economic recovery.

Lower excise duty on automobiles having already chartered its path prior to the budget, commercial vehicle (CV) sector was eyeing investments in infrastructure and manufacturing. For CV OEMs, increased allocation in infrastructure sector (roads & highways) puts emphasis on improved capital spending by manufacturing sectors to drive construction-enabling CVs (i.e. tippers) sales. Teh segment accounts for 1/4th M&HCV sales in India. No increase in allocation towards JNNURM schemes has been announced, which has been instrumental in driving bus sales. Scope of economic recovery and recent improvement in freight rates are expected to boost CV demand in FY 2014-15.

The sync between farm mechanisation and credit availability will benefit from institutional credit flow to the agri sector Attention to irrigation projects and funds to protect farmers from climate uncertainty and price volatility of agri-produce is a move to stabilise farm inflows. Modern warehousing setup and direct access positively influence farmers’ bargaining power and earning capability. Government efforts on rural development are expected to to drive tractor industry demand. ICRA Budget Reaction on Auto Sector with inputs from Subrata Ray, SR. VP- Co-Head, Corp Ratings, ICRA