New Delhi [India], February 4 (ANI): Union Budget raising the income tax exemption limit to Rs 12 lakh is expected to give a big boost to the demand of 2-wheelers (2Ws) and passenger vehicles (PVs) according to a report by the global brokerage firm Jefferies.
The report highlighted that the proposed tax relief will provide the Indian middle class with a total tax benefit of approximately Rs 1 lakh crore, which could lead to increased discretionary spending, including on automobiles.
It said, “The proposed income tax cuts should help the Indian middle class with a total tax benefit of approx. Rs1.0Trn, which is likely to boost discretionary consumption including demand for two-wheelers (2W) and passenger vehicles (PV), especially in urban areas”.
Jefferies estimated that the tax benefits will be distributed among around 3.5 crore taxpayers, translating to an average annual benefit of nearly Rs 30,000 per person.
It stated that given the estimated market size of 4.3 million PVs and 21 million 2Ws in FY25, the additional spending power from tax cuts could significantly boost sales.
It also noted that upcoming salary hikes for public sector employees in FY27 could provide an additional push to the auto sector.
The Union Government has recently announced the formation of the eighth pay commission to recommend hiking the salaries of central government employees.
The report predicts that two-wheelers and passenger vehicles will be among the biggest beneficiaries of the increased consumer spending.
The report maintains its projection of a 13 per cent compound annual growth rate (CAGR) for the two-wheeler industry from FY25 to FY27, which translates to a modest 3 per cent CAGR from FY19 to FY27.
While the two-wheeler and passenger vehicle segments are expected to grow strongly, the outlook for the truck industry is less optimistic. It believes that slower capital expenditure (capex) growth could hurt truck demand.
It said, “On the flip side, moderating capex growth is likely to be a drag for truck demand; we cut our FY26/FY27 truck industry growth estimates”.
As a result, the firm has lowered its growth estimates for the truck industry from 5 per cent per year in FY26 and FY27 to 0 per cent and 5 per cent respectively. Over the FY25-27 period, truck demand is expected to grow at a sluggish 2 per cent CAGR.
“we expect 2Ws and tractors to grow at a strong 13-15 per cent CAGR, PVs to grow at healthy 9 per cent, but trucks to lag at just 2 per cent” says the report.
The report also pointed out that the budget’s focus on fiscal consolidation provides room for the Reserve Bank of India (RBI) to take a more accommodative stance in its upcoming Monetary Policy Committee (MPC) meeting on February 7. A dovish policy approach by the RBI could further support economic growth and consumer spending.
If economic conditions remain favourable, the automobile sector could see strong momentum in the coming years. (ANI)
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