Key Takeaways of Union Budget 2017-18 for India Automotive Industry

India: The automotive industry had a lot of expectations from the Union Budget, however, nothing specific came up for the automobile sector. Nevertheless, some of the major budget announcements are expected to have an indirect positive effect on vehicles demand in India. The government of India through its Union Budget announcements exhibited major focus on rural and infrastructural development.    

The government has announced INR 97,000 crore for the development of the country’s infrastructure. Out of the total figure, INR 55,000 crore has been kept for improvement of roads and highways. This step is expected to boost demand for commercial vehicles (CV) as well as off-the-road vehicles (OTR) across the country. Moreover, announcements to offer affordable housing are also expected to push demand for construction machinery as well as commercial vehicles.

This is expected to boost rural road development, which will lead to faster and more effective mobility solutions. Also, synergistic investments in rail, road and river will ease supply chain operations and will benefit logistic heavy segments like the automotive industry. The boost to National Highways, coastal connectivity and ports is another step to aid exports and to bolster last mile connectivity for the manufacturing sector.

The new budget has lowered the bracket of personal income tax from 10% to 5% for individuals earning under INR 500,000. This move would result in increasing the disposable income, which is expected to create a positive impact on passenger car and two-wheeler sales.

Government initiatives to enhance road infrastructure for better mobility, coupled with growing consumer disposable income would also augment demand for automotive components from OEMs operating across the country. Moreover, vehicle sales, especially passenger car & two-wheelers sales are expected to rise in the coming fiscal year, which tends to boost the production and sales of automotive components. The decrease in corporate tax rate for MSME has come as a huge relief, especially for Tier-2 and Tier-3 automotive component manufacturers.

Allocation of INR 175 crore towards funding of the electric and hybrid vehicles program, through FAME scheme, is expected to give a push to the sales of these vehicles.

As per TechSci Research, government focus on rural development will boost vehicle sales across rural India. Budget allocation for infrastructure development and highway development would lead to increasing demand for commercial and off-the-road vehicles as well as for automotive components.

According to TechSci Research report, “India Commercial Vehicles Market by Vehicle Type, By End Use Industry, Competition Forecast and Opportunities, 2021’’, the commercial vehicles market in India is projected to grow at a CAGR of over 14%, in value terms, during FY2017–FY2022. Rising infrastructure development projects across the country, tentative replacement of old commercial vehicles fleet on account of implementation of stringent emission norms, growing manufacturing and logistics sectors, and increasing focus on tourism and hospitality sector by central and various state governments are few of the major factors projected to propel India commercial vehicles market over the course of next five years.

As per a report by TechSci Research, “India Automotive Components Market By Vehicle Type, By Demand Category, By Component Type, Competition Forecast and Opportunities, 2011 - 2021”, automotive components market in India is estimated to cross US$ 44 billion in 2016. Passenger car segment accounted for the largest revenue share in the country’s automotive component market in 2015. The segment is anticipated to grow and maintain its dominance over the next five years as well, owing to increasing sales and expanding fleet size of passenger cars.