Auto companies' hopes soar

The major automakers, including tractor and light trucks, see a boost from greater government spending in rural areas

Employment guarantee schemes, doubling of farmer income and a rise in investment on rural road building are the initiatives in the Union Budget that, the automotive industry is hopeful, will reignite rural demand.

Erratic monsoons have hit farm produce and incomes, hurting volumes of entry-level cars, two-wheelers, light trucks and tractors for manufacturers which target the rural areas for volumes. Hero MotoCorp, Maruti Suzuki and Mahindra & Mahindra, for instance.


Yadvinder Singh Guleria, senior vice-president at Honda Motorcycle & Scooter India, said: “In the backdrop of two weak monsoons, the government’s focus on the rural sector — farmer welfare, education, interest subvention on existing loans and skill development — will inject strength in the rural economy. Overall, we expect such measures, once implemented, will revive the stagnant demand for two-wheelers in rural areas.”

Motorcycles generate at least a third of volumes from the rural pocket. In the April-January period, first 10 months of this financial year, sales were 8.89 million units as against 9.09 mn in the same period last year, shows data from the Society of Indian Automobile Manufacturers.

Delhi-based Hero MotoCorp, the country largest two-wheeler maker, gets 40-45 per cent of sales from rural markets. It posted a fall in April-January for the first time in three years at 5.3 mn units, down 2.4 per cent.   

Domestic tractor sales have been the worst hit. Mumbai-based Mahindra & Mahindra, which has a little more than 40 per cent of the market, under two brands, posted a fall of 12 per cent in volumes in April-January. Pawan Goenka, executive director, said, “A five-year doubling in farm income (as promised in Monday's Union Budget proposals) means an increase of 12-13 per cent every year and that is a very bold statement. If that happens, it will transform our economy. A good monsoon, along with the focus on rural income, will definitely increase our sales numbers. The tractor industry has been down for two years and we could have some nice surprises.”  

Finance Minister Arun Jaitley has proposed to increase the allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme by Rs 3,800 crore in the coming financial year, to Rs 38,500 crore, the highest on it till date. Similarly, it has been proposed to substantially increase the allocation on the Pradhan Mantri Gram Sadak Yojna, from the Rs 9,805 crore in 2013-14 to Rs 19,000 crore in 2016-17.