Budget 2024: Rural development push can boost auto sales

The Union budget for 2024 has allocated Rs 2.66 lakh crore for rural development. The rural economy plays a crucial role in the automobile sector, with significant sales volume coming from rural areas. While the Budget did not have any update on the FAME subsidy scheme or the tax structure for vehicles, the industry is hopeful that the focus on rural development could help improve sales, particularly for tractor and two-wheeler segments.

In her budget speech, Finance Minister Nirmala Sitharaman said a provision of Rs 2.66 lakh crore has been made for rural development, including rural infrastructure, and Rs 1.52 lakh crore has been set aside for agriculture and allied sectors. She also noted that 109 new high-yielding and climate-resilient varieties of 32 field and horticulture crops will be released for cultivation by farmers.

The government is also launching the fourth phase of the Pradhan Mantri Gram Sadak Yojana (PMGSY) to provide all-weather connectivity to 25,000 rural habitations. A national Cooperation Policy for systematic, orderly and all-round development of the cooperative sector is also being rolled out. "Fast-tracking growth of rural economy and generation of employment opportunities on a large scale will be the policy goal," she said.

Ahead of the budget, the Society of Indian Automobile Manufacturers' President Vinod Aggarwal had stressed the importance of the rural economy, and fiscal measures that stimulate the rural economy will augur well for the industry.

"The enhanced Minimum Support Prices (MSP) for major crops and the launch of Phase IV of PMGSY are positive steps that will boost rural incomes and improve rural connectivity, thereby potentially increasing rural auto sales," the Federation of Automobile Dealers Associations' President Manish Raj Singhania said today.

Rural market potential particularly, is considered a key enabler to sustain and drive the automobile industry’s growth this year. Tractor and two-wheeler sales are seen as a proxy for rural economic health. Agricultural output, and government schemes, like the MNREGA and higher crop MSPs, play a crucial role in improving the disposable income at the hands of people there.

Automakers have been looking to drive business in the rural areas which offers significant scope for expanding their sales. The rural economy took a hit after the pandemic and has been gradually recovering with green shoots seen since the last festival season. It has been one of the reasons why two-wheeler sales remain below the previous peak.

“The provision of Rs 2.66 lakh crore for rural development including rural infra is a huge positive for rural auto sales which will majorly benefit tractors, entry-level bikes and cars,” said former FADA President and automotive dealer, Vinkesh Gulati. 

JCB India CEO and MD Deepak Shetty believes PMGSY would reduce farm-to-market distance and enable better access and integration of rural communities, thereby sprucing up the rural economy.

“One can see a clear focus on long-term measures to enhance the productivity of crops and combat climate change through high-yielding and climate-resilient variety of seeds,” CRISIL Market Intelligence & Analytics Director for Research Pushan Sharma.

"With a 4% increase in allocation for rural development at Rs. 2.66 lakh crore, and a 5% YoY increase in allocation for agriculture and allied sector of Rs 1.5 lakh crore, this budget will strengthen the 'Annadata' – our farmers, the backbone of our nation, while providing a much-needed fillip for growth of the overall economy," said Hemant Sikka, co-chair of FICCI’s National Agriculture Committee and president of M&M's Farm Equipment division.

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