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Auto sales could dip in the short term

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The Budget has succeeded in striking a good balance between leading the economy to a higher growth trajectory, controlling the fiscal deficit and giving a message that the country is continuing on the path of reforms. The finance minister highlighted the biggest weakness of the government — its delivery capabilities. This has been flagged as a priority objective, and the ability to attain double-digit growth will essentially depend on how the delivery capabilities are enhanced. And a Budget which promotes economic growth, with fiscal stability and low inflation, will always be good for the automobile industry.

I had hoped the stimulus would be gradually rolled back and that has happened with excise duty going up 2 per cent. An increase in prices of this magnitude should have no impact on sales, though in the immediate future sales may slightly dip, not because of the price increase, but because many customers had advanced purchase of cars, anticipating an increase in excise duty.

The fiscal deficit projected is reasonable and government borrowings should not put an undue strain on interest rates or liquidity. Availability of financing and stable EMIs are necessary for sales. Higher spending on infrastructure and rural development, and lower outgo on income tax would promote demand for cars.