With measures announced to boost incomes of rural households, one can expect more demand for tractors, two-wheelers, passenger vehicles and commercial vehicles in the days to come.
Among the measures announced in the Budget, the government will spend Rs 19,000 crore on building roads in rural areas as part of the Pradhan Mantri Grameek Sadak Yojana in FY17. It has also allocated Rs 15,000 crore interest subvention for agricultural loans.
While introducing the Finance Bill, the FM said a renewed focus on the rural economy will help mitigate rural distress. The rural economy will get much-needed fillip from the increased allocation of funds for MGNREGA. The government has also allocated Rs 55,000 crore for building roads and highways and Rs 15,000 crore will be raised by the NHAI through bonds.
However, amidst all the favorable announcements, the decision to levy the infra cess on petrol, gas and diesel vehicles will adversely impact sales of vehicles.
The government’s decision of levying 1% infra cess on petrol, 2.5% on diesel and 4% on larger vehicles is likely to pull down volumes as vehicles will become expensive. The FM has also levied 1% extra tax on luxury vehicles worth more than Rs 10 lakh.
“The tractor and two-wheeler industries will benefit the most if the rural economy improves. Our volumes will improve a lot if the demand scenario improves. With the introduction of infra tax, vehicles can attract taxes up to 35%, which is not very encouraging,” said Pawan Goenka, executive director, M&M.
“I am concerned about the extra green tax on cars. The industry has to spend enormously on meeting the accelerated regulations on safety and emission and any extra tax is a significant burden,” said Vikram Kirloskar, vice-chairman, Toyota Kirloskar Motor.
Maruti Suzuki’s bread and butter products—Alto and Wagon R—have also found it difficult in the past to increase volumes due to poor rural demand.