Auto industry: Lower interest rates and taxes to encourage 2-wheeler and small car demand

The cut in the key benchmark rate by the Reserve Bank of India (RBI) is expected to create a positive sentiment across market and drive stronger demand in price-sensitive two-wheeler and entry-level car segments, automotive industry players said on Friday.

The industry players noted that the reduction in rates coming closely after the income tax relief provided to individuals will have a positive impact on the auto sector.

The Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, slashed the repo rate by 25 basis points to 6.25 per cent on Friday. This was the first reduction since May 2020 and the first revision after two-and-a-half years.

"Reduction in rates at this time, closely following the relaxation in income tax for individuals in the recent Budget would certainly have a positive impact on the auto sector, as it will increase accessibility by reducing the financing costs, thereby creating a positive sentiment across the market," Society of Indian Automobile Manufacturers (SIAM) President Shailesh Chandra said in a statement.

Expressing similar views, Federation Of Automobile Dealers Associations (FADA) President, C S Vigneshwar said, "This cut dovetails seamlessly with the Finance Minister's recent announcement of zero tax up to ₹12.75 lakh, thereby enhancing consumers' disposable income."

He further said, "With auto loans set to become more affordable, we expect stronger demand in the price-sensitive two-wheeler and entry-level car segments, which have faced the brunt of steep price hikes and affordability concerns.

"When combined, these measures could reinvigorate segments that have been lagging, helping them catch up with the broader market. FADA lauds the RBI for facilitating growth while remaining 'neutral' on inflation and we anticipate this rate cut will lend much-needed momentum to India's auto retail sector in the coming months."

Hyundai Motor India Ltd (HMIL) whole-time director and COO Tarun Garg said, "Currently demand momentum is stable and our dealers have about four weeks of inventory. RBI has announced 25 bps reduction in interest rates and this augurs well for the overall demand sentiment going forward."

The rate cut is also expected to drive demand further in the rural markets.

"We believe that rural contribution will continue to improve backed by strong measures focused on improving productivity, supporting MSP and facilitating government backed loans to farmers via Kishan Credit Card," Garg said.

Further, he said, "Road infrastructure continues to grow steadily, thus boosting rural demand," he said, noting that "the gap between so-called 'rural' and 'urban' is now shrinking and rural customer preferences are evolving at a very high rate".

Stating that rural indeed has been the cornerstone of HMIL strategy especially over the last few years, he said, "Our rural contribution has seen a consistent growth. Also we are continuously strengthening our rural presence in high potential locations both from sales as well as customer service perspective."

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