Budget 2024: From measures to increase disposable income to strong capital expenditure – experts share expectations for the automotive sector

With the upcoming Union Budget for the financial year 2024-2025, experts highlight the industry’s hopes for measures that will drive economic growth, innovation and sustainability in the automotive sector.

Analysts believe that after a tighter-than-expected election race, the new NDA government may prioritize rural spending over capital spending in a bid to boost demand in rural areas. Favorable monsoon forecasts also support the expected revival of the rural market.

These factors are likely to increase the disposable income of rural consumers, thereby increasing demand in the automotive sector, especially for two-wheelers.

Meanwhile, vehicle sales in May showed a strong performance in the SUV segment and positive trends in the commercial vehicle (CV) segment. Year-to-date (YTD) growth in two-wheelers and SUVs was solid, helped by improving consumer sentiment, successful price hikes, new model launches and gradual recovery in rural markets.

Let’s take a look at what industry experts from leading brokerages and research houses expect from the upcoming budget for the auto space.

The industry hopes the budget will maintain capital spending on infrastructure projects that will benefit the automotive sector and place emphasis on promoting clean mobility to accelerate the adoption of electric vehicles.

Amar Nandu, Research Analyst, SAMCO Securities

Any actions leading to an increase in taxpayers’ disposable income will be very positive for car manufacturers. The extension of the FAME subsidy will also help further the spread of electric vehicles. Steps to improve charging infrastructure across the entire length and breadth of the country will be a big positive. Promoting EV exports through PLI schemes or other means will give the auto sector a boost this fiscal.

Mumuksh Mandlesha, Research Analyst, Anand Rathi Institutional Equities

1) The FAME program should be continued, especially for 2W (also 4W) vehicles, as there is no increase in the number of electric vehicles. The government should accelerate the e-bus program

2) Faster compliance of PLI schemes and release of funds (quarterly) for greater EV uptake

3) Lower GST rate for 2Ws entry

4) Government programs to revitalize rural areas

5) Increase infrastructure spending

6) Increase in duty on auto parts such as tires and advanced batteries/components

7) Strict implementation of scrapping policy, especially for trucks and buses

Aditya Welekar, Senior Research Analyst – Automotive & Metals, Axis Securities

Firstly, the PLI program has significantly supported the automotive industry. However, industry bodies advocate consistency in its structure and less frequent changes by government to reduce confusion, thereby enabling increased private sector capital spending.

Secondly, the industry would like to see the Faster Adoption and Production of Electric Vehicles (FAME) program continue with some rationalization. A boost to charging infrastructure and energy storage systems, government support for research and development in clean energy, green mobility and semiconductors will help the auto sector. Some allocation is also expected to provide incentives for the creation of academic courses or skills training on electric vehicles.

– The government could consider introducing tax cuts to increase consumption, which will have a positive impact on the automotive industry.

– The budget could include social programs to boost consumption in rural areas, which could potentially spur a recovery in the currently weak entry-level tractor and motorcycle market.

Atul Parakh – CEO of Bigul

The automotive sector is eagerly awaiting several key measures in the upcoming budget. Reducing GST rates could provide much-needed relief to the industry, making vehicles more affordable for consumers. Incentives are provided for scrapping. Supporting electric vehicle (EV) research and development is crucial as it can drive innovation and help India become a leader in electric vehicle technology. Furthermore, investments in the development of rural infrastructure could increase market access and demand for vehicles in rural areas. There is also hope for a reduction in import duties on electric vehicle components.

Ajit Mishra – VP Research, Religious Trade Brokerage

Automotive stakeholders are eagerly awaiting the Budget’s position on supporting greener technologies, especially electric vehicles. They are eagerly awaiting an update on the potential FAME 3 schemes to encourage electric vehicle production, along with proposals to reduce GST on lithium-ion batteries and introduce production-linked incentives. There is also a strong call for a reduction in GST on entry-level combustion engine two-wheelers, currently pegged at 28%.

Overall, the industry expects the budget to maintain capital expenditure on infrastructure projects, benefiting the automotive sector. The focus remains on promoting clean mobility to accelerate the introduction of electric vehicles.