Budget measures on jobs, skilling, rural economy cheer auto industry

New Delhi: Measures to support agriculture, lift farm incomes and attract more youth to the workforce, particularly in entry-level manufacturing, are likely to boost disposable incomes and aid demand for automobiles. The Union budget's ₹2.66 trillion promise for rural development and ₹1.5 lakh crore for agriculture may also spell good news for the tractor and light commercial vehicles sector.

“Overall, we view the budget positively, especially given its continued emphasis on growth. The government's infrastructure (capex) allocation has been retained at ₹11.11 trillion, and a very clear commitment has been given for the next five years,” said Vinod Aggarwal, president, Society of Indian Automobile Manufacturers (Siam) and managing director, Volvo Eicher Commercial Vehicles. 

Rural boost to aid demand

“The ₹2.66 lakh crore allocation for a rural development fund should boost the rural economy”, Aggarwal said. Support for micro, small and medium enterprises (MSMEs), which form the supplier base for the automobile industry, will help improve the health of the ancillaries sector, he added.

“The recent budget announcement by the Government of India brings a blend of optimism and challenges for the auto retail sector. 

According to Manish Raj Singhania, president, Federation of Automobile Dealers' Association (Fada), the focus on the poor, women, youth and farmers highlights a comprehensive approach towards inclusive growth, which is commendable. "Enhanced minimum support prices for major crops and the launch of Phase-IV of Pradhan Mantri Gram Sadak Yojana (PMGSY) are positive steps that will boost rural incomes and improve rural connectivity, thereby potentially increasing rural auto sales”, Singhania added. 

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“The government also took cognizance of our long-standing demand to scrap the equalization levy of 2%, which was an unnecessary irritant”, Aggarwal of Siam added.

The industry does not believe the absence of higher capex allocation as a negative. “It is not a disappointment. The government has already spent ₹9 trillion. On an increased base, ₹11.11 trillion is a good allocation”, he said.

However, finance minister Nirmala Sitharaman's decision to levy an additional tax on receipt of money against buyback of shares, as well as hiking capital gains tax, while not impacting automobile demand directly, could dampen buyer sentiment temporarily. The BSE Sensex fell nearly 1% at the conclusion of the Finance Minister's speech, before recovering by the close of trading.

Manufacturing, employment boost to benefit auto sector

“The government is incentivizing the job creation in the manufacturing sector which is likely to impact three million youth. We expect that these additional skilled workers with disposable income in hand will help in driving growth in the automotive industry in the two-wheeler segment", Rajat Mahajan, partner, Deloitte India said.

Schemes on skilling and upskilling of workers, apprentices as well as employment generation initiatives for manufacturing are very good steps that will benefit automobile companies, Aggarwal of Siam said.

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Sitharaman announced that a new centrally sponsored scheme for skilling workers will benefit two million youth over a period of five years. Also, 1,000 industrial training institutes (ITIs) will be upgraded in a hub & spoke mode, with updated course content to be tailored to the needs of the industry, particularly emerging sectors like electric vehicles. The move addresses a crucial skill gap in electric vehicle manufacturing, as demand for highly skilled workers rises and academic curriculums lag industry needs.

Budget misses FAME-III, keeps focus on energy transition, critical minerals

While the Union budget 2024 skipped mention of EVs, measures such as removing customs duty on the import of critical minerals like lithium, copper, cobalt and other rare earth metals are expected to encourage faster localization of advanced automotive technologies, including lithium-ion cells.

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Sitharaman also said the government will take measures to drive private capital to the energy transition sector, with incentives such as viability gap funding (VGF) for investors in renewable infrastructure projects as well as creating a ‘carbon taxonomy’. “We will develop a taxonomy for climate finance - to attract finance for climate adaption and green transition”, she said in her budget speech in the Parliament.

“We welcome the budget's progressive measures to boost investment in renewable energy, sustainable agriculture, frontier technologies, critical minerals, space tech, and deep tech R&D. By prioritizing innovation and sustainability, India is poised to strengthen its position on the global stage. This budget is a significant step towards a future where technological advancements propel economic growth and environmental stewardship”, Anjali Bansal, founding partner of climate investment firm Avaana capital said.

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