New Delhi [India]: The Union Budget’s proposal to raise the income tax exemption limit to ₹12 lakh is expected to significantly boost the demand for two-wheelers (2Ws) and passenger vehicles (PVs), according to a report by global brokerage firm Jefferies.
Key Insights from the Jefferies Report
📌 Income Tax Cuts to Inject ₹1 Lakh Crore into the Economy
- The proposed income tax relief is expected to provide the Indian middle class with an estimated ₹1 lakh crore in total tax benefits.
- This could increase discretionary spending, particularly in urban areas, leading to higher demand for automobiles.
📌 Impact on Automobile Industry
- 3.5 crore taxpayers are expected to benefit from the tax cut, receiving an average annual benefit of ₹30,000 per person.
- The report suggests that this additional spending power will fuel demand for 2Ws and PVs, supporting robust industry growth.
- The estimated market size for FY25:
- Passenger Vehicles (PVs) – 4.3 million units
- Two-Wheelers (2Ws) – 21 million units
📌 Growth Projections for the Auto Sector (FY25-27)
- Two-Wheelers & Tractors: 13-15% CAGR (Compound Annual Growth Rate)
- Passenger Vehicles: 9% CAGR
- Trucks: Lagging at just 2% CAGR
Public Sector Salary Hikes & RBI’s Role
🔹 Eighth Pay Commission Impact
- The government’s formation of the 8th Pay Commission (for salary hikes of central government employees in FY27) is expected to further push automobile demand.
🔹 RBI’s Monetary Policy Outlook
- The budget’s emphasis on fiscal consolidation creates room for the Reserve Bank of India (RBI) to adopt a dovish monetary policy.
- The Monetary Policy Committee (MPC) meeting on February 7 may see interest rate adjustments, further stimulating economic growth and consumer spending.
Challenges: Truck Demand to Weaken Due to Slower Capex Growth
- The truck industry is projected to underperform due to moderating capital expenditure (capex) growth.
- Revised growth estimates for trucks:
- FY26: 0% growth (previously projected at 5%)
- FY27: 5% growth
Conclusion
The Union Budget 2024’s tax cuts are expected to spur automobile demand, particularly in the two-wheeler and passenger vehicle segments. While the industry outlook remains positive, the commercial vehicle sector may struggle due to weaker infrastructure spending.
With favorable economic conditions, public sector salary hikes, and potential RBI rate cuts, India’s automobile sector could experience strong momentum in the coming years.