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 FY10-11 did little to disrupt the growth story. Except for the 2% excise duty hike in passenger vehicles, it chose to keep most of the other duties intact and hence, did not roll back any of the stimulus measures. Also, higher allocation towards defence and infrastructure augurs well for the long-term growth story. On the direct tax front, while increase in weighted deduction on R&D expense to 200% was a positive, increase in MAT rates is likely to take some sheen away from it. All in all, a favorable budget for the auto sector.
Budget Measures
A weighted deduction of 200% for expenditure relating to in-house research and development.
Increase in excise duties on cars, MUVs and SUVs by 2% to 22%
Surcharge on domestic companies reduced to 7.5% from 10%
Increase in the rate of Minimum Alternate Tax from 15% to 18% of book profits
Agricultural credit outlay increased to Rs 375,000 crore from 3,25,000 crore
Higher allocation towards road development programme such as the NHAI and rural infrastructure.
Increase in the allocation to the defence sector.
Budget Impact
Extension of R&D benefits will encourage more investments in this space and will make Indian auto sector competitive in the long run.
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
R&D incentives to benefit companies like Bajaj Auto, M&M and Tata Motors that do not have any significant foreign collaboration and rely heavily on in-house R&D.
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.
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.