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.
Applicable 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‚Äô 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