Budget 2016's focus on rural segment sparks hope in automakers

Employment guarantee schemes, doubling of farmer income and hike in investment on rural road building scheme are the government-backed initiatives that the automotive industry is hopeful will reignite rural demand.
Reduced contribution from the non-urban markets on account of decline in farm incomes has left a string of automotive companies that depend heavily on rural demand in the lurch.
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Failed and erratic monsoon has crippled farm produce, hurting volumes of makers of entry cars, two-wheelers, light trucks and tractors, all of whom target the rural areas for volumes. Hero Motocorp, Maruti Suzuki and Mahindra & Mahindra are among the marquee automakers, among others, that have been hit.

“In the backdrop of 2 consecutive weak monsoons, the government’s focus on rural sector especially farmer welfare, education, interest subvention on existing loans and skill development will inject strength in rural economy,” said Yadvinder Singh Guleria, senior vice president (sales & marketing), Honda Motorcycle & Scooter India. “Overall, we expect such measures once implemented, will revive the stagnant demand of 2-Wheelers in the rural areas."
Motorcycles, which generate more than a third of volumes from rural pockets, have seen a fall of 2% in volumes in the April-January period. Sales closed at 8.89 million units as against 9.09 million units sold in the same period last year, according to data from the Society of Indian Automobile Manufacturers (SIAM).
Hero Motocorp, the country largest two-wheeler maker, which generates 40-45% of its sales from rural markets, posted a fall for the first time in three years. The Delhi-based company closed the April-January period at 5.30 million units, reporting a volume decline of 2.4%.
Domestic tractor sales have been the worst hit because of the downturn, reporting two consecutive years of decline. Mumbai-based M&M, which controls more than 40% of the market under two brands posted a fall of 12% in volumes in the April-January period.

Pawan Goenka, executive director, Mahindra & Mahindra, said, “Five year doubling in farm income means an increase of 12-13 per cent every year and that is a very bold statement. And if that happens it will transform our economy. A good monsoon along with the focus on rural income will definitely increase our sales numbers. Tractor industry has been down for two years in a row (so) we could have some nice surprises.”
Finance Minister Arun Jaitley has proposed to increase the allocation to employment guarantee scheme Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) by over Rs 3,800 crore in the coming financial year. This has taken the total amount to Rs 38,500 crore, which if spent will be the highest budget spend on MGNREGA.
Similarly, it has been proposed to substantially increase the allocation on the Pradhan Mantri Gram Sadak Yojna (PMGSY) in the budget. As compared to Rs 9,805 crore allocated in 2013-14 there is now an allocation of Rs 19,000 crore in 2016-17.