The massive boost in infrastructure spend and the mechanisms announced to fund it will spur significant primary demand for commercial vehicles
Overall the Budget could be compared to a solid middle-order batting that came after an explosive opening knock in the form of the Rail Budget presented by railway minister Suresh Prabhu two days back. Three themes in this Budget presented by the finance minister Arun Jaitley on Saturday are critical to industry, if one considers its broad contours.
The first theme is infrastructure. Over 100,000 km of roads have been targeted over and above the massive push in the rail sector, in addition to the discontinuous investments in public amenities through the ambitious Swachh Bharat Abhiyaan.
The massive boost to infrastructure spend (R70,000 crore), as well as the mechanisms announced to fund it, will kick-start a virtuous cycle, resulting in significant primary demand for various types of commercial vehicles.
The second theme is grassroots entrepreneurship. MUDRA bank, formed to refinance microfinance institutions (MFIs), as well as the Jan Dhan–Aadhaar-Mobile money programme are both directed towards creating grassroots entrepreneurs. By entering the formal banking system, the poor get access to finance at a lower cost, especially once the overdraft facilities kick in in the crores of Jan Dhan accounts opened at thousands of bank branches across the country in the last few months. As grassroots entrepreneurs require low-cost transport, this will, in turn, drive demand for small commercial vehicles (SCVs).
The third theme in the Budget is reform. Introducing a new bankruptcy law, announcing a road map to lower corporate taxes and other such actions are clearly directed towards making India more competitive to do business. Continued push in this direction will encourage more players to enter India, bringing investments as well as boosting economic activity in the country.
While there has been no excise duty modification for the automotive sector, I believe that long-term demand creation is more sustainable than short-term sops to boost consumption. The government has moved in exactly this direction with the Budget proposals.
The central government has also correctly decided to drive small, incremental improvements rather than big-bang reforms. In our own experience, the centerpiece of any turnaround is not a big, innovative idea but mission-mode execution.
In the last few months the central government had demonstrated its ability to execute in Mission Mode. An example of such determined action was evident in the rollout of the Pradhan Mantri Jan Dhan Yojana which is aimed at comprehensive financial inclusion. I believe that this will continue in the coming days.
By Vinod K Dasari, Managing Director, Ahok Leyland