The Union Budget 2025-26 has raised the income tax exemption limit to Rs. 12 lakh (US$ 13,775.18), which is expected to boost demand for two-wheelers and passenger vehicles, according to a report by Jefferies. The tax relief will provide middle-class taxpayers withs benefits worth approximately Rs. 1,00,000 crore (US$ 11.48 billion), increasing discretionary spending, particularly in urban areas. The report estimates that around 3.5 crore taxpayers will receive an average annual benefit of Rs. 30,000 (US$ 344.38) each, significantly impacting automobile sales. With an estimated market size of 4.3 million passenger vehicles and 21 million two-wheelers in FY25, the additional spending power is projected to drive growth. Furthermore, upcoming salary hikes for public sector employees in FY27 are expected to provide an additional boost to the auto sector, with the two-wheeler industry forecasted to grow at a 13% compound annual growth rate (CAGR) from FY25 to FY27.
Two-wheelers and tractors are projected to grow at a strong 13-15% CAGR. Passenger vehicles are expected to maintain a healthy 9% CAGR. Additionally, the budget's focus on fiscal consolidation could allow the Reserve Bank of India to adopt a more accommodative stance in its upcoming Monetary Policy Committee meeting on February 7, 2025, potentially supporting further economic growth and consumer spending. If macroeconomic conditions remain favourable, the automobile sector could witness strong momentum in the coming years.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.