Two-wheeler makers get a shot in the arm from Budget 2017

MUMBAI: Sops doled out to the rural sector by finance minister Arun Jaitley will help salvage the two-wheeler industry from the post demonetisation slump, according to experts.

In his budgetary speech, Jaitley announced an allocation of Rs 1,87,223 crore on rural, agriculture and allied sectors, up by 24% since last year. Along with the hike in allocation, tax rate for salaried class in the income bracket of 2.5l to 5l was reduced to 5% from the prevailing 10%. Together with an apparent earnest commitment showed towards doubling farm incomes by 2025, makers of two wheelers can expect some respite as demand will start to show signs of improving.

"As per the initial estimates, we would atleast see the sales of two-wheelers, especially motorcycles, coming back to what they were pre-demonetisation. In the next six months, we can see the budgetary relief reflecting on growth in demand and sales," Rakesh Batra, partner and national leader, automotive sector, EY India said. "Everything else remaining constant and with a good monsoon, we should see a year on year growth of 10-11% for FY18," Batra added.

The government has also given its "highest allocation ever" of Rs 48,000 crore to Mahatma Gandhi National Rural Employment Guarantee Act MGNREGA, India's largest anti-poverty scheme as well as ensuring water security with ponds. On this, Dr. Waman Parkhi, partner, Indirect Tax, KPMG, India said, "While these measures will not directly increase demand, it will have a snowballing effect on the total rural demand that will affect two-wheelers too. We should see the level of sales that took place in September-October 2016 to come back by end of March or beginning of April, provided remonetisation takes place at a good pace."

The note-ban executed by the government on November 9 had led to a veritable fall in demand across all sectors. However, with limited cash transactions squeezing out liquidity and farm incomes, the sectors for two-wheelers and tractors were amongst the worst hit. There was a year on year decline of 22% in sales of two-wheelers in December, 2016, compared to a year ago, which led to inventory pile up in rural dealerships. Major two-wheeler companies like Hero Motocorp, Bajaj Auto and TVS reported dismal sales figures in December.