Business, Economy, Government

Budget: No fuel for Auto Sector

The automobile industry in India was left dispirited by Finance Minister Arun Jaitley’s decision to put brakes on cash dealings above 3 lakhs from April 1.

“The number of people showing income more than Rs. 50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold. From all these figures we can conclude that we are largely a tax non-compliant society,” said Jaitley during the budget session.

The move will slow down the luxury car market and indirectly restrict the motor vehicle loan services sector that offered loans not entirely but as a proportion of the vehicle cost.

“Before demonetisation, people paid nearly 60 per cent of the cost by cash and 40 per cent through a bank. Even the automobile financier funds just around 40 per cent of the cost. They hardly give 80 per cent of the vehicle cost as loan,” said Shrinivasan K, secretary, Motor Vehicles and Allied Industries Association, Chennai.

“Jaitley said that 1 crore cars have been sold. Manufacturing has increased. Previously, manufacturers were fewer. Now, there are different models. Second-hand car sales has improved. Now, all the dealers have got a general manager for second-hand vehicles, for exchanging an old car with a new one. Only the difference in amount is paid. These exchange schemes stabilised sales,” he added.

Now, the industry expects a steep climb following dull sales for two quarters, hit by demonetisation, which affected the four-wheeler segment much stronger than the two-wheeler segment. The number of enquiries became fewer and bookings were cancelled.

“Automobile sales will be marginal. Even rural demand will get reduced. Only two wheelers will have a gain. Transportation of goods is required, especially for remote villages. Tractor sales will get affected,” said an office bearer, Chennai Goods Transport Association.

“Although there is demand for commercial vehicles, the new policy, once implemented will affect sales. Mostly, truck drivers do not own trucks. Their owners will continue to run old trucks. The business model is such that restricted cash-transactions will not only affect commercial vehicle sales but hit goods transport as well,” he added.

The budget showed its persistent focus on infrastructure with an outlay of Rs. 3.96 lakh crores. The allocation for rural sector was increased by 24 per cent to Rs. 1.87 lakh crores. The funds for the development of rural roads is set at Rs. 27,000 crores.

“The growth in auto industry would rebound to the pre-demonetization level through revival of the rural market and substantial increase in expenditure on infrastructure, which are two key factors responsible for the recent growth of the industry,” said Vinod K Dasari, President, Society of Indian Automobile Manufacturers (SIAM), in the official press release.

However, the sentiment in the automobile sector suggest that these measures to lay new highways and to provide better last mile connectivity would have been beneficial to the commercial vehicles segment if only the cash-dealing restriction wasn’t introduced.

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