Union Budget 2017: How will it affect buying cars and two-wheelers

Although the recently announced Union Budget 2017 has had some indirect impact on the Indian Automotive sector, how will the new implementations bring out transparency in vehicle sales from a larger perspective?

By:February 2, 2017 4:21 PM
The new implementations of the Union Budget 2017 may improve vehicle sales in the rural areasThe new implementations of the Union Budget 2017 may improve vehicle sales in the rural areas

The Indian Automotive sector has been one of the prime contributors to the GDP (Gross Domestic Product) of the country and there were expectations for some direct benefits from the industry. However, Finance Minister, Arun Jaitley, did not announce anything that could make a direct impact on the sector. However, some announcements are bound to have some sort of an indirect impact on vehicle sales? In fact, the demonetisation of the currency notes impacted sales for a short-term, however, this move aided in companies considering online modes of payment and increasing their approach towards digital channels.

Coming back to the Union Budget 2017, which had reduction in customs duty for LNG (Liquefied Natural Gas) from five percent to 2.5 percent, there were no announcements made on relaxation of taxes on hybrid or electric vehicles. Expectations also included better export infrastructure, restoration of weighted reduction on R&D facilities and other critical aspects which would create more job opportunities. However, the limitation of accountable cash transaction between two individuals not exceeding Rs 3 lakh would mean that potential car buyers would have to go through the ‘traceable’ channels, which had multiple loopholes earlier.

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For example, a used Audi A4 may cost Rs 20 lakh in the used market, however, the buyer now cannot give over Rs 3 lakh to the seller in cash. The rest has to be through a mode of transaction that can be accounted for. This would mean that this income can be traced back and if needed, the person concerned can be questioned for ‘doubtful’ transactions. In addition, this would also make a car purchase more transparent as the Government will have a complete account of why there is a certain amount of cash that has been put into one’s account.

In addition, the new Union Budget also suggests more disposable income for farmers due to the relaxation of tax and offering more rebates. This should also boost sales of passenger vehicles along with commercial and farming equipment, thereby indirectly increasing sales. This would have a larger impact on who-wheelers and entry-level cars, which make up for a larger chunk of automotive sales in the rural markets. The effect in urban areas will be lesser and will primarily be limited to those who fall under the income bracket of Rs 2.5 lakh to Rs 5 lakh due to the tax rate being lowered from 10% to 5%.

While the budget did not have direct implications on the auto sector, there may still be good effects in this evolving industry and GST or Goods and Services Tax, that is expected to be implemented by 1st April, 2017, that should have a positive impact as well on vehicle sales.

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