Budget 2024: Rural, infra push likely to boost auto sales

The automobile industry is anticipating a push towards the rural economy and infrastructure in the Union Budget FY25 to boost sales in the rural market. The rural market is considered significant for driving the growth of entry-level two-wheelers, the small car segment, and the commercial vehicle segment, even as their sales have declined in recent months.

This announcement comes as major automobile manufacturers are working to expand their presence in the rural market.

"This budget presented by Hon'ble FM Nirmala Sitharaman will stimulate consumption, attract substantial investments, and stabilize inflation. This budget successfully addresses the dual imperatives of economic growth and fiscal responsibility," says Pawan Munjal, Executive Chairman, Hero MotoCorp.

In the Union Budget for FY25, the government has allocated ₹2.66 lakh crore for rural development and ₹1.52 lakh crore for agriculture and allied sectors in a bid to boost the rural economy. Similarly, the government has allocated ₹11.11 lakh crore in capital expenditure, providing strong fiscal support for infrastructure over the next five years.

“The Indian automobile industry welcomes the continued emphasis on economic growth with several announcements, especially the strong fiscal support for infrastructure in the next five years. The liberal allocation for rural development and infrastructure of ₹2.66 lakh crore is a welcome step that will boost the rural economy,” says Vinod Aggarwal, President, Society of Indian Automobile Manufacturers.

Notably, automobile dealers are also looking forward to an increase in sales with the rural boost. “The enhanced Minimum Support Prices for major crops and the launch of Phase IV of the Pradhan Mantri Gram Sadak Yojana (PMGSY) are positive steps that will boost rural incomes and improve rural connectivity, thereby potentially increasing rural auto sales,” says Manish Raj Singhania, President, Federation of Automobile Dealers Association (FADA). He adds that increased capital allocation for infrastructure will facilitate better logistics. According to Sitharaman, Phase IV of PMGSY will be launched to provide all-weather connectivity to 25,000 rural habitations which have become eligible due to population increase.

Meanwhile, N K Minda, CMD, Uno Minda, opines that the boost in infrastructure will significantly increase consumption, supporting the lower-middle-income class. This is expected to boost demand for the two-wheeler segment and entry-level cars.

Additionally, the commercial vehicle industry is anticipating an increase in sales with investments in the mining and housing sectors. “The continued emphasis on fostering investment and enhancing road infrastructure, especially in Andhra Pradesh and Bihar, will facilitate growth in the manufacturing and automobile sectors. Focus on private investment in infrastructure, mining, and housing sectors is also likely to boost the sale of commercial vehicles,” says Dheeraj Hinduja, Executive Chairman, Ashok Leyland.

According to rating agency ICRA, the government’s focus on infrastructure development augurs well for commercial vehicle demand, especially multi-axle vehicles and tippers. “The capital outlay on infrastructure development at ₹11.1 trillion for FY2025 BE, equivalent to 3.4% of GDP, remains unchanged from the interim budget. The GoI’s continued focus on infrastructure development, including new road projects in Bihar, plug-and-play industrial parks in 100 cities, and 12 new industrial parks, augurs well for commercial vehicle demand, especially multi-axle vehicles and tippers. The focus on developing tourism locations and improving road connectivity in rural areas also augurs well for the demand for public transportation, including buses,” says Kinjal Shah, Senior Vice President & Co-Group Head - Corporate Ratings, ICRA Limited.