ICRA expects the Government to maintain its focus on the rural economy and infrastructure investments in the upcoming Budget. This apart some roadmap for the recently announced production-linked incentive (PLI), can be expected.
"Another long pending auto-specific policy, relating to the scrappage of Commercial Vehicles (CV) may also find a mention in the Budget. The automotive industry faced strong demand headwinds during FY2020 with the slowdown in economy during H2 FY2020, exacerbated by the NBFC crisis.
The industry also had to grapple with challenges of investments and cost increases, following the tightening of emission & safety norms, especially the BS-IV to BS-VI transitions. On the back of these challenges, came the Covid-19 related lockdown, which disrupted manufacturing activities, supply chain and most importantly affected consumer demand during the first six months of the current fiscal. The automotive demand, however, has been on a mend since then, with strong sequential recoveries across most segments," ICRA has said in a report on Union Budget Expectations.
The rural sector has withstood the Covid-19 challenges better - which is manifested into relatively robust demand in rural-focused product categories, especially tractors. The rural sentiment had been positive with healthy crop cycles of kharif and rabi in 2019 and healthy water reservoir levels, helped further by a normal monsoon and Government support in the form of increased procurement of key crops, higher MNREGA allocations, the MSME guarantee loans etc.
"The domestic CV industry has faced significant demand drawdown with 85% and 55% contraction in CV retail volumes witnessed in Q1 and Q2 FY2021 respectively. This has come on the back of a steep volume contraction of 29% in FY2020. Challenges such as release of capacity in the trucking system (due to revised axle load norms and GST implementation), a weak macroeconomic environment, cost increases due to new emission norms (BS-VI), financing constraints, and stress on the cash flows of fleet operators, have all exacerbated," the rating agency has said.