Budget expectations: Auto sector

21 Jan 2022 , 06:31 PM

“ICRA expects the Government to focus on consumption revival through employment generation, investment in infrastructure development and rural economy in the upcoming Budget. The domestic automotive industry was expected to post a recovery in FY2022 after witnessing two challenging years in FY2020 and FY2021 on account of the domestic industry slowdown and pandemic-induced challenges, respectively. The sudden and severe onset of the second wave of the pandemic in Q1 FY2022 derailed the demand recovery momentum, which had started gaining steam from H2 FY2021.

Even as demand across certain segments recovered well, following the dip in infection rate, the industry prospects were impacted by other factors, such as consistent increase in cost of ownership as well as supply shortage owing to the semiconductor chips issue. These multiple headwinds significantly impacted the prospects of the industry, evidenced by decadal low levels of sales in the festive season of FY2022.

Rural demand was impacted during the second wave and despite agri cash flows remaining relatively healthy, the festive offtake was subdued. The untimely and excessive rainfall since September 2021 led to flooding in many regions and delayed kharif harvest/ rabi sowing. Consequently, rural demand sentiments have moderated over the past few months. The Government may make some announcements to support the rural community, especially amid increasing infections and consequent fears of higher medical expenses associated with the same.

Despite the ongoing volatilities, OEMs will continue to invest in new product development, with significant investments towards new technologies, such as electric vehicles (EVs). Significant financial incentives are being offered under the Centre’s FAME-II scheme and EV policies of select state; further announcements to promote local manufacturing, in relation to production linked incentives (PLI), can be expected.”

Source: ICRA

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