Budget 2023 is being presented at a time when India is seemingly in better shape than most countries around the world.
Europe is facing disturbing recessionary trends, while China has also been slowing down. India, on the other hand, is expected to see at least 6% growth this year, which places it among the few bright stars in a volatile global arena.
From the auto industry’s point of view, sales of cars and SUVs clearly show that the good times are back even while sceptics will argue that they are still not as buoyant as the pre-COVID days. The Centre’s focus on electric mobility is paying off, especially if one were to see the growing momentum in the two- and three-wheeler segments. In cars, companies like Tata Motors are leading the surge with a host of others like Mahindra & Mahindra, Hyundai, MG Motor and BYD joining the electric bandwagon.
Yes, the picture does look a lot better than 2020 and ’21, when the pandemic threw life out of gear and economic growth virtually plummeted. However, not everything is as hunky-dory as it seems.
Bleak Two-Wheeler Scenario
Two-wheeler sales are down to new lows and the heady days of 20 million units annually almost seems like a dream today. Entry-level motorcycles are facing the heat thanks to slumping demand in many parts of rural India.
Unemployment is a grave reality to reckon with here and households in small towns and villages are facing the heat of inflation in food and fuel, especially cooking gas, where prices of domestic cylinders have shot past the INR 1,000 mark. Petrol, diesel and CNG prices are up too, which means families are struggling to make ends meet. In this grim backdrop, buying a two-wheeler is the last thing on anyone’s mind.
This also explains why the same headwinds facing two-wheelers is true for entry level cars too. To manufacturers, Bharat — the terrain beyond urban India — remains a key market and once again the same challenges persist. People need access to finance, which is not easy to come by since banks and finance companies are not sure if the loans will be repaid on time.
In the case of two-wheelers, the problem has been aggravated by the incessant round of levies in the form of insurance, safe regulations, etc which have hiked their price tags like never before. A commuter motorcycle or scooter is now in the region of INR 100,000 which was unheard of till a couple of years ago. The move to Bharat Stage 6 in April 2022 also led to a price hike and with the second phase due to kick off in a couple of months down the line, another increase is inevitable.
Manufacturers will need to recover investments in technology except that customers are not always in sync, especially when it is burning a hole in their wallets. The aftermath of the pandemic has left behind bruised families, who have little to fall back upon in terms of income. When they are also denied easy access to finance, buying a moped or basic entry-level bike will remain a pipedream to them.
This is the reality that cannot be brushed away despite all the chest-thumping on the incredible recovery in auto sales. The simple truth is that urban India has higher levels of disposable income and can afford to buy expensive SUVs and premium motorcycles. Bharat, or rural India, is still struggling with the scenario akin to a drowning man with a straw.
Experts believe that with timely monsoons in 2022, farmers will be in a good position to buy two-wheelers all over again but this remains to be seen. Perhaps this is also true for tractors, where a super period in FY21 was followed by a more sombre FY22.
Reality Of Politics
Given that the Budget has always had generous outlays for rural India, coupled with the fact that there are assembly elections scheduled this year, there could be some good news coming in. The key is to put more money into people’s hands for consumption to pick up along with easing up lending norms.
This is relevant to urban India too where expectations are high regarding a hike in the income tax exemption limit coupled with increasing the limit in Section 80C to claim deductions from the present level of INR 150,000. The Centre will be keenly aware of the fact that it goes into National Elections next year and it, therefore, becomes doubly important to convey a positive message to its voters in this Budget.
If customers get a new lease of life in terms of having more money to spend, there will be a ‘feel-good’ sentiment all around, which will propel buying and fuel growth. Inflation will still be a matter of concern, especially when it comes to prices of cooking gas and auto fuels but an important starting point will be to ensure that people have extra money to spend.
Roads And Highways
It is also a given that the Budget will continue to earmark outlays for roads and highways, which is a good thing, especially for manufacturers of trucks and construction equipment. The last 2-3 years have also shown how better roads have acted as a catalyst for buying SUVs with people now preferring personal transport to flying.
Electric mobility, likewise, is expected to get a boost though the fact remains that subsidies cannot last forever. Manufacturers will doubtless be pleased to see this continue but there is clearly a finite timetable here and the key is to act quickly on other parameters like laying the base for charging infrastructure and the like.
Right now, India is in a better place than a whole lot of other countries except that there is still a lot of fixing to do in rural India. Geopolitical tensions still persist with Russia clearly in no mood to stop the war on Ukraine. China continues to be a point of tension and if it decides to turn the heat on Taiwan, things could just get sticky. A confident India should not be lulled into a sense of complacency.
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