A Positive Union Budget

Dear friends,

Much hyped and anticipated general Union Budget 2014 has been unveiled.

There were a lot of expectations of big bang policy announcements and reforms from the new Government that came to the power on the promise of rebooting the beleaguered economy and bringing back “Achhe Din” for the common man, hit hard by the sticky inflation and lack of job opportunities due to the slowing economy. Given the little leeway available to him and tight rope walk he had to do, the Finance Minister has presented a balanced Union Budget 2014-15.

We, in FADA, are thankful to the Hon’ble Union Finance Minister for having already extended the stimulus for auto sector by way of cut in excise duty on motor vehicles, which was announced in the Interim Budget for 3 months, up to 31st December 2014. 

FADA was expecting higher rates of depreciation especially in the case of commercial vehicles that have been reeling under acute slowdown for about 3 years now. Likewise, FADA was also expecting raise in the depreciation rates in the case of passenger vehicles in tune with the market reality and to spur demand. We, in FADA, hope that these suggestions would be incorporated before the Union Budget 2014 is finally passed.

However, in view of the precarious state of the Government’s finances and the need of balancing fiscal deficit and reviving the growth & investment climate, the Finance Minister has done a good job.

The Union Budget contains a number of proposals that will promote the growth of economy, including auto sector. Fiscal deficit target of 4.1 per cent for FY15 and 3.0 per cent in two years, increase in cap on FDI in insurance and defence, renewed thrust on infrastructure sector, particularly significant outlay for road infrastructure development, divestment of banks, and firm indication of GST rollout in near future are some of the positive highlights of the Budget.  Raising the income tax exemption limit in the case of individuals, deduction under section 80C and deduction for interest on housing loans in respect of self-occupied property by Rs. 50,000 each will leave more disposable income in the hands of individuals and catalyze demand for consumer durables including motor vehicles. Benefits extended to the real estate & construction, power and shipping sectors, as well as announcement of expeditious resolution of current impasse in mining sector, will, hopefully, revive the demand for commercial vehicles.

All said and done, the Union Budgets in the recent past have not been short on intent. What has left much to be desired is the implementation of the proposals in a time-bound manner without cost over-runs. Some of the projects announced in the Budget as far back as 2005 have not seen the light of the day till date, while a few other projects have been bogged down by environment clearances, land acquisition, litigation and intervention of the judiciary. Lack of clear direction and political will have been preventing those projects to take off.

I hope that the Government, enjoying decisive mandate, will pay equal attention to the implementation of the proposals contained in the Budget and translate outlays into outcome at the ground level, benefiting the intended beneficiaries to bring about inclusive growth.

The skeptics have been quick to point out that the Budget contains nothing new and is merely a rehash of the projects & schemes already introduced by the previous Government. They also point out that estimated 17.7% growth in revenue is not achievable in the backdrop of projected GDP growth of 5.4-5.9% during the year 2014-15 and the lurking fear of sub-normal monsoon. Therefore, there are apprehensions whether the fiscal deficit will be contained at 4.1%. Also, concerns have been raised that inflation may flare up again due to volatility in oil prices arising out of geo-political turmoil in the middle-east and expected sub-normal monsoon rains, which may, in turn, make all the calculations go haywire.

Definitely, managing fiscal deficit and inflation are two key concerns disturbing the Government, the economists, the business and the people alike. However, I am optimistic that the Government will come up with timely measures and weather the storm, if these major threats to the economy materialize. Regarding absence of any big bang reform or new bold policy initiative in the Union Budget, we must appreciate that the new Government has had less than 45 days in office to prepare the Budget. The Government should be given reasonable time for any radical directional change or big-ticket reform.

One thing is apparent, nonetheless, that the formation of the new Government at the Centre, with decisive mandate, has improved the sentiment in general, which is reflected in the automotive sales and the Sensex. Passenger vehicle market, which had been going through a sluggish spell for over two years, is, of late, witnessing uptick in sales slowly but steadily. However, commercial vehicles continue to face headwinds, suggesting that a firm economic recovery remains a distant dream. There is gainsaying that commercial vehicle sales are the barometer of the health of economy.

The good news is that industrial output as measured by IIP rose by 4.7% in May 2014. This is the highest growth in IIP in 19 months since October 2012 when the IIP grew by 8.4%. The icing on the cake is that it comes on the top of 3.4% rise in factory output recorded in April 2014. The May IIP numbers are music to our ears and inspire the hope that the economy and the industrial activity are steering back to the firm growth track. Though the May IIP data got push from the base effect, because of the last year’s weak numbers, the news is refreshing and will go a long way in improving the sentiment. The Government’s growth projections for the year 2014-15 are based on how the industrial recovery shapes up.

Another piece of good news is that the crude oil prices have started easing of late and the Rupee is showing a semblance of stability hovering in the 60-61 band against dollar. This development somewhat allays fears on account of ballooning petroleum subsidy. In nutshell, with pros outweighing cons, auto market can look forward to better days ahead.

Adverting to FADA’s activities, FADA Academy Training & Development programme, in association with Prashaste Training Academy, is on course. One more Effective Dealership Management Program was organized in June at Delhi. Another such programme is scheduled to held in Raipur on 25th & 26th July 2014. As you are aware, FADA has decided to organize a series of training & development programmes at regular intervals all over the country on rotational basis. In case any member is keen on organizing such programme in his/her city, state or region, the undersigned or FADA Secretariat can be contacted.

While welcoming the Union Budget 2014, FADA has submitted a Post-Budget Memorandum to the Union Finance Minister, reiterating the suggestions for higher rates of depreciation in respect of commercial vehicles and passenger vehicles.

We are also taking forward the proposal for institution of Transporters’ Excellence Awards and working further to make it a reality. FADA is in dialogue with the oil marketing companies and the users’ organizations in this regard. The idea, hopefully, will take a concrete shape shortly.

I shall welcome your inputs, ideas and suggestions, if any, to make FADA’s initiatives more meaningful to its constituents.

With best wishes,

Yours sincerely,

Mohan Himatsingka

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