The one factor that’s seen as a source of worry month after month is the muted entry level demand for new vehicles, especially the entry level ones.Be it cars or two-wheelers, entry level demand is well below the pre-Covid numbers. However’s auto analysts are hopeful that the Budget provisions enabling improvement in disposable income might change that scneario going forward.
According to Arun Agarwal, Vice President – Fundamental Research, Kotak Securities, “reducing tax burden under the new tax regime will increase disposable income and may aid recovery in entry level segments in the automobile industry.”
Kunal Vora, CFA, BNP Paribas was however concerned about the possible impact of the lower MNREGA allocation, “the cut in income-tax rates should improve disposable incomes of taxpayers. However, lower allocations for MGNREGA and for food and fertiliser subsidies are likely to dampen rural demand.
Affordability aspects
Vora, while referring to the affordability aspect also outlined that, “Visibility on electric vehicle (EV) incentives after FAME II, which expires next year, would have been useful for companies investing in the new technology.”
Gautam Khattar, Principal – Price Waterhouse considers the tax re-calibration may incentivise domestic manufacturing, “While there has been a customs duty increase of 10% on imported vehicles (including electric vehicles), the effective increase is around 4% as the social welfare surcharge which was earlier levied on such vehicles has been exempted. Nevertheless, this should incentivise domestic vehicle manufacturing in a segment which is largely used by Indian consumers and is also climate friendly.”
Scrappage Policy to trigger demand
Replacement demand and making EVs affordable through lowering the battery costs are seen as other potential catalysts that could trigger demand at the entry level. Arun Agarwal of Kotak Securities added that, “Customs duty exemption was extended to import of capital goods and machinery needed for manufacture of lithium-ion cells for batteries used in electric vehicles. Lower cost of batteries will make electric vehicle’s more affordable. In the budget speech, the Finance Minister also announced allocation of funds to scrap and replace old vehicles of the central government and also supporting States in replacing old vehicles.”