Budget Impact Analysis – Auto Sector

By Dhanyakumar M H

Expectations from Industry:

  • Cut in corporate tax from 30 to 25%
  • Implementation of the vehicle scrappage scheme
  • Incentives for hybrid and electric car production to be extended
  • Removal of connection between size of car and tax
  • Push for infrastructure to offer a quality road in the long run

What Budget has to offer?

  • Personal Income tax:
    • Increase in zero income tax slab from 2.5 lakh to 3 lakh
    • Reduction in income tax from 10% to 5% for income between 2.5 to 5 lakh

Increases in household disposable income. Provides a boost to first-time auto buyer preferably two-wheeler or entry level car.

  • Infrastructure development:
    • Better the infrastructure in the country, is an incentive and encouragement for Auto Industry
    • Budget is seen as a pro-development and this would boost the sales of MHCV, HDCV and heavy equipment
  • Goods and Service Tax:
    • Implementation of GST is confirmed, but there was no message to Auto industry regarding the removal of the link between size and taxation.
  • Rural Income and Agriculture:
    • Mission of doubling farmer income would help increase the disposable income
    • Interest waiver for 60 days due to the impact of demonetization is a welcome move
    • Expected to see a 4.1% increase in Agri output

Increase in rural income would help two wheelers, tractor and entry level car manufactures. It may also help an LCV segment of commercial vehicles.

  • Market Reaction: Advance in stocks
    • Bajaj Auto, Hero Motocorp and TVS Motor
    • M&M, Maruti Suzuki, Eicher Motors, Tata Motors and Ashok Leyland
    • Escorts and VST Tillers
    • Auto Ancillaries are also shown an advancement in stock prices

Conclusion:

Overall the budget has not met the expectation of the auto industry and there was no surprise as well. But the move towards reducing personal income tax and push for rural India is welcomed. As this would increase the disposable income, industry expects an increase in sales of two wheelers, tractors, entry level cars and finally MHCV & HDCV because of push to infrastructure development. Industry is hoping to see more revival post GST implementation as there will be zig-zag in tax structure.

Budget Impact Analysis – FMCG and Consumer Durables Industry

By Nishant D’Souza

Year on year FMCG companies has posted robust results in their 3rd quarter reason being many major festivals happen during this period. However, the same was not emulated this year, companies posted flat or below par results as demonetization sent the FMCG sector into paralysis and the only budget could be the probable savior.

Measures and their impact:

  • Income tax has been lowered from 10% to 5% for individuals in tax slab 2.5 lakh- 5 lakh – This will greatly benefit the youth considering the fact that many falls in this tax bracket. Even individuals earning up to 8 lakhs will surely make an effort to bring their taxable income within the 5 lakhs tax slab. We shall see a launch of many entry-level products in the white goods sector.
  • Increase in MNREGA allocation from 38,500 crores to 48,000 crores year on year – MNREGA scheme provides a minimum of 100 days of guaranteed wage payment to every individual who has opted to do unskilled manual labor. MNREGA has already been a success in providing employment for rural folks during off-season farming. Considering the fact we had good monsoon in most parts of the country and with this increase in MNREGA allocation FMCG companies having exposure in rural areas will greatly benefit. FMCG companies will amend their existing products into smaller packs to attract rural attention.
  • Reduction in presumptive tax from 8% to 6% under section 44AD for gross payments received through electronic mode – This will benefit professionals and we can expect a rise in white goods sales with summer soon approaching. I don’t see mom and pop stores declaring taxable income even after this tax discount.
  • Reduction in corporate tax from 30% to 25% for companies with an annual turnover below 50 crores – Many raw material supplying companies fall within this tax bracket, we can expect a reduction in the cost of raw materials.

A lot of initiatives have been undertaken to revive agricultural growth and increase the focus of investments in rural areas:

  1. A target of 10 lakh fixed per person as agricultural credit and overall target of 10 crores for the financial year 2017-2018.
  2. Extension of tenure of loans under Credit Linked Subsidy Scheme of the Pradhan Mantri Awas Yojana to 20 years.
  3. Allocation for agriculture sector has increased by 24% to Rs 1,87,223 crores.
  4. 8,000 crores set aside for dairy processing infrastructure fund.

Additional surcharge of 10% on annual income over 50 lakhs will surely come as a dent on the revenues of the high-end service industry.

Apart from the change in excise duty on cigarettes no other change in service tax or excise duty was witnessed. Abolition of Foreign Investment Promotion Board should witness the much needed FDI in the consumer durable industry. Overall this budget has greatly helped in meeting the expectations of the corporates who have been vying for an increase in the personal disposable income.