Interim Budget 2019's Rural Push, Tax Sops Spells Cheer For Auto Industry

The Indian automobile industry was watching the Interim Budget 2019 with great interest. Top on the agenda was any incentives being announced for green vehicles or components. While the Finance Minister had no specific measure for the auto industry directly, there is much to celebrate for the sector anyway. As was expected to happen, the Interim Budget has focused strongly on the rural economy and the agricultural community. The auto industry is likely to benefit as well, as it will increase spending power in the hands of the farmers. Increased consumption will impact two wheeler, passenger vehicle and farm equipment sales.

Farmers owning up to two hectares of land, who will receive Rs. 6,000 as direct income support

In his budget speech, Finance Minister Piyush Goyal announced the PM Kisan Samman Nidhi. This affects farmers owning up to two hectares of land, who will receive Rs. 6,000 as direct income support every year. This will cost the government Rs. 75,000 Crore. Those directly affected by natural calamities will have 2 a percent interest subvention and will get a further 3 per cent interest subvention on timely repayment of loans. Rs. 19,000 Crore has also been allocated towards rural road infrastructure for 2018-19, up 26 per cent over last year's Rs. 15,000 Crore allocation.

Pawan Goenka, Managing Director, Mahindra and Mahindra said, "Farmer package was expected; that something will happen and what has happened is applying to land owner-farmer and not applying to land less farmers. So, in a sense, about half the people get benefits from this and half probably get left out, and that is prudent, because there is no way one could have expected an outlay required for covering everybody and it's good that Rs. 75,000 crore is what gets spent on this."

The push to the rural economy is along the lines of what was expected in an election year. This is given farmer distress has been dominating the political discourse. The specific boost to the rural economy will likely have a direct and positive impact on makers of tractors and farm equipment. Two wheeler players are also expected to see an increase in rural sales. Speaking to carandbike, Sunjay Kapur, CEO, Sona Group said, "The budget seems to have a positive sentiment and the indirect benefits should boost sales in the auto sector. Especially Farm Equipment and construction equipment segments."

Hyundai says increased purchasing power in the hands of the people is likely to have an impact on buying pattern

Another big highlight of the budget sees individual taxpayers with annual income up to Rs. 5 lakh getting a full tax rebate. Individuals with gross income up to Rs. 6.5 lakh will not need to pay any tax if they make investments in provident funds and prescribed equities. This means approximately 30 million middle class taxpayers will get a tax exemption. We reached out to players like Maruti Suzuki and Hyundai. An official spokesperson for Hyundai Motor India told carandbike, "We believe that the increased purchasing power in the hands of the people, arising from the tax benefits for India's middle class and to rural Bharat, will translate into an increased offtake of the proud symbols of the hard-earned social status, including the car." While Maruti Suzuki has no formal statement to offer at this time, sources at the company say they are closely assessing the potential impact the budget proposals will have on their sales. Remember the auto industry has been gripped by declining sales, and anything that could be seen to relieve that pressure is largely celebration worthy. Rajesh Goel, Senior VP and Director, Sales and Marketing, Honda Cars India said, "With additional benefits in Direct Taxes announced in today's Interim Budget, we expect the consumer sentiment to improve in the coming months."

Honda Two-Wheelers is optimistic that the resultant positive customer sentiments can offset the industry slowdown caused by the insurance premium hike

Two wheeler players may be the happiest as putting the extra money in the hands of farmers or the middle class may not spur any large ticket purchases like tractors or cars, but may still do so for bikes. Commenting on the new rural and income tax policies, Yadvinder Singh Guleria, Senior VP, Sales and Marketing, Honda Two-Wheelers said, "It's more disposable income in the hands of 3 crore households for whom two-wheeler is a basic transport need is good news for the industry. We are cautiously optimistic that the resultant positive customer sentiments can offset the industry slowdown caused by the insurance premium hike earlier this year and bring back the industry momentum to earlier estimate of higher single digits."

Sharing his views on the Interim Budget 2019, Baba Kalyani, CMD, Bharat Forge, said, "Conventional understanding is that presenting an Interim Budget just before a general election places several constraints on the Finance Minister. Within these limitations, the government has chosen the middle path by announcing measures that will positively impact a large cross section of people who deservedly require relief from the burden of taxation and also addressed issues of agrarian distress and employment, both of which will remain key priorities for any post-election dispensation. To that extent the government has shown that it is sensitive to the immediate challenges and has taken measures to respond to them."

Most of the provisions will only play out when they are formalised after the Lok Sabha election in May. So the actual effects of many of these proposed measures may not be seen for a while. But the positive sentiment - which in many ways plays a larger role than actual monetary benefits - is likely to help pull the industry out of the doldrums it finds itself in right now.