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Budget 2011: Auto

FY10 turned out to be the year when the Indian auto sector made a grand comeback. It finally put the disappointment of FY09 behind it and egged on by some very favorable factors like low interest rates, government stimulus measures and improved buyer sentiment, went on to notch some very buoyant numbers. Also, the growth was not restricted to just one segment but almost all the segments performed admirably.

The Union Budget for the year FY11-12 was one of the more widely anticipated budget in recent times. This was because the FM was in need of more money and hence, it was expected that the axe would fall on the auto sector. However, that did not turn out to be the case with the FM choosing to not tinker with the current excise duty structure. Among other positives was the continued impetus on rural income as well as rural and urban infrastructure. Besides, a small relief on the income tax front was also positive from the point of view of demand for low value vehicles like two-wheelers. All in all, a decent budget for the auto industry

 Budget Expectations
  • Reduction of excise duty and the removal of additional Rs 15,000 tax imposed on big cars to minimize the gap with those of small cars.

  • Retention of existing excise levels on small car.

  • Retention of current customs duty structure on imported cars in order to protect domestic industry as well as to encourage car manufacturing in India.

  • Removal of the special additional duty and reduction of duties on key raw materials such as aluminum and alloy steel, which constitute a significant chunk of cost of most auto components.

     Budget Measures
  • Surcharge on domestic companies reduced to 5% from 7.5%

  • Increase in the rate of Minimum Alternate Tax from 18% to 18.5% of book profits

  • Agricultural credit outlay increased to Rs 3,75,000 crore from 4,75,000 crore

  • Higher allocation towards road development programme such as the NHAI and rural infrastructure.

  • Increase in the allocation to the defence sector.

  • National mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders

     Budget Impact
  • Higher defence allocation will spur investment in new vehicles.

  • Higher agricultural credit outlay will help boost demand for tractors.

  • Increased thrust on road infrastructure is a positive for all the automobile manufacturers especially passenger vehicles and CVs.

     Company Impact
  • Increased defence sector allocation to benefit companies like Ashok Leyland, M&M and Tata Motors that are large suppliers to the defence sector.

  • Higher allocation to the agriculture sector to benefit tractor manufacturers like M&M.

  • Greater thrust towards creation of road as well as rural infrastructure is a positive for the entire sector as a whole.

    Budget Impact: Auto Sector Analysis for 2010 
    Latest: Performance Of Auto Stocks | Auto Sector Report

  • Complete coverage Budget 2011

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