Monday, 19 March 2012

Benefits from Budget 2012 to Automobile Sector

We are sure, that you must have read the above heading twice before you would have head on to this brief para. Budget 2012 has certainly been very harsh for the Indian Auto sector including the hike in Excise duty, Custom duty and no major incentive for the sector. Moreover, the impact of all those mentioned above were felt even more because it all came at a wrong timing. The Budget 2012 came at a time when the past year had already been ruined for the auto component makers and for the OEM's.

This was the time when everybody in auto sector wanted to forget the bleed that happened during the last year and head on to the new year with a fresh start, with positive feelings in mind. However, the Budget 2012 did not paved the way for it however, it made the route even more herculean.

The last two months, January and February ignited a ray of hope in senior management of top auto makers in India, with sales marking a growth as compared to previous year. Overall, the negative growth which even SIAM anticipated could be waived off with, all thanks to the Sales posted in January and February. March 2012 as per us will not be a very great month as half of the month would have posted huge growth keeping spirits and sentiment of people as registered in previous two months but at the same time the second half of March would post negative or flat growth, keeping the growth flat or slight growth (to be optimistic) in March 2012.

However, coming to the point the positive impact that Budget made to the sector was thankfully no additional burden was introduced for the Diesel vehicles, which the Industry anticipated to be Rs 80,000 per vehicle. No decision on this have made clear for the OEM's across India to go on with their proposed diesel engine investment in India inlcuding that for Maruti Suzuki, Honda, Toyota and General Motors to name a few. Maruti Suzuki had proposed an initial investment of Rs 1000 Crore in Manesar to manufacture diesel engines as the company could sense the growing Capacity. This would bring in fresh investment for the sector which could prove to be beneficial in the long term. Another point to celebrate would be the car makers would not have to spend more time in restructuring their current plan/schedule of Diesel-Petrol mix, and would continue producing the same, the Diesel-Petrol mix to be 75:25 for most of the car makers.

We can once again sense a strong year ahead, amidst the imposition of Customs and Excise duty, the growth to come from increased buying of Diesel vehicles by the end consumers. The only thing we now need to monitor is there is no increase of rates by the government, as they are currently very high. Any reduction in the  rates could be a benefit for the Industry.

We hope a strong year ahead and even better the next two years, as the investment during this year would give returns during the next two years.


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