Two-wheeler and three-wheeler goods carrier demand will be indirectly aided by increased agriculture credit and additional subvention on farm loans
- Increased excise duty by 2% to 12% on both two wheelers and three wheelers.
- Basic customs duty on non-alloy HR and CR coils hiked from 5% to 7.5%. HR. This can lead to more pricing power for steel, and increase in steel cost of the auto sector.
- Target for agricultural credit raised by Rs 1, 00,000 crore to Rs 5, 75,000 crore in FY 2012-13.
- Interest subvention scheme for providing short term crop loans to farmers at 7% interest per annum to be continued in 2012-13. Additional subvention of 3% available for prompt paying farmers.
- Plan Outlay for Department of Agriculture and Co-operation increased by 18%.
- Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to Rs 9,217 crore in FY 2012-13. Further Rs 300 crore has been allocated to Vidarbha Intensified Irrigation Development Programme under RKVY
- Allocation for the Bringing Green Revolution to Eastern India scheme increased to Rs 1,000 crore in 2012-13 from Rs 400 crore in 2011-12.
- Extended weighted deduction of 200% for R&D expenditure in an inhouse facility for a further period of 5 years beyond March 31, 2012.
- Increased the exemption limit for general category of individual tax payers from Rs 1.80 lakh per annum to Rs 2 lakh per annum. Revised the tax limits for general category of individual tax payers: at nil for upto Rs 2 lakh per annum, 10% for over 2 lakh to upto 5 lakh per annum; 20% for over 5 lakh to upto 10 lakh per annum and 30% for over Rs 10 lakh per annum.
- Allowed deduction of upto Rs 10,000 for interest from savings bank account.
- Proposal to provide weighted deduction at 150 per cent of expenditure incurred on skill development in manufacturing sector
- No change in the corporate income tax rates.
Budget Expectations Not Met
- Retain excise duty at 10% on two and three wheelers
- Remove 1% national calamity contingent duty on two wheelers/three wheelers.
The hike in excise duty in two wheelers will increase the cost of two and three wheelers. On the positive side, the reduced tax incidence due to the increase in tax limit and additional tax exemption limit on interest rate of savings account is positive for consumption spending. With increase in general excise duties, and hike in customs duties on steel, we can expect duty draw back on auto exports to go up, which is likely to be notified in June 2012. This should improve the margins on exports, and would benefit all auto exporters, with optimal benefits for Bajaj Auto.
Two wheeler demand especially in rural India will boosted by increased allocation towards agriculture credit and additional subvention on farm loans as it would place more cash in hands of rural people. This would aid sales of all two wheeler companies especially Hero Motocorp and Bajaj Auto as rural sales constitute 45% and 55% of total sales respectively.
Similarly, the demand for three wheeler goods carrier would be moderately impacted by hike in excise duty on account of possibility to pass on the hike to consumers as raise in freight rates. Also with increased cash in hand of people through higher agriculture credit and additional subvention on farm loans would lead to higher demand for products. This would aid the demand for three wheeler goods carrier that is used as transport in last mile connectivity. On the other hand, three wheeler passenger carriers, which is already facing low demand due to small CVs eating into its space and lack of permits, will be further negatively impacted by hike in excise duty.
Extension of 200% weighted deduction on in-house R&D will continue to support and encourage companies to churn out better products. This will benefit all two wheeler players such as TVS Motor, Bajaj Auto and Hero Motocorp who have inhouse R&D. Also introduction of weighed deduction on expenditure incurred on skill development would benefit all the commercial vehicle manufacturers as skill training is basic pre-requisite for these companies in manufacturing field.
On the negative side, hike in customs duty on non-alloy HR and CR coils would increase the costs of auto parts and thus the two wheeler and three wheeler industry.
Companies to watch
Bajaj Auto, Hero Honda, TVS Motors, Eicher Motor (manufacturer of Royal Enfield)
Taking into consideration the neutralization effect of hike in excise duty with higher tax limit and possible growth in rural demand, the Union Budget 2012-13 is neutral with a positive bias for both the two wheeler industry and three wheeler goods carrier. On the other hand, three wheeler passenger carriers will be worsened with hike in excise duty.