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Budget 2017: The flight of a good drive

BVR Subbu is the ex-Hyundai chief and absolutely articulate to the ‘tee’ when it comes to the sector he knows best—automobiles.

As he drove me through the fairways of the sector, he told me about the issues being faced by the sector and the bunker shots that make it complicated, biggest being demand contraction. He explained how it is most pronounced in the commercial vehicle (CV) space, and marginally less so in the consumer facing businesses like cars and two-wheelers.

The CV sector remains impacted by a poor growth in manufacturing and agriculture, and a significant capacity overhang due to the growing population of articulated trucks, four-axle and five-axle trucks, and improved operating efficiencies due to overall improvement in roads.

The big issue impacting cars is that business expectations remain somewhere between muted and negative, he said, adding, that’s where the bunkers and lakes get in the game. The two-wheeler segment appears to have been impacted more by demonetization and its rather broad impact on the rural economy.

So, what would Subbu like the Budget to look into?

Anything that spurs broad spectrum ‘real’ growth, is good for the auto sector. If the Budget gives infra development a spending-led push, many segments of the CV sector will benefit immediately. Similarly, any tariff support that the steel sector gets or a better regulation of anti-competition forces in the cement industry could provide growth-triggers throughout the core sector. Subbu feels that the spillover from core sector growth will in turn impact overall business expectations positively, and lead to a revival of demand from the services sector.

The Budget will hopefully give banks enough reason and suggestions not to play a spoilsport, and the FM will put money into consumer pockets. If he allows salaried employees, for instance, to claim depreciation on cars in their tax returns, say upto Rs 10 lakhs in a three year bloc period, it would do far more for demand expansion than the ‘excise cuts’. Also, he believes it is important to study the actual pricing behaviour of auto firms after excise cuts, over the last two decades perhaps, before even contemplating any excise cuts.

Auto makers who know their business well are continuing to grow and make money even in the present market scenario. Even those who are not doing as well are still outperforming global peers or parents. And the ones who are not doing well at all have obviously lost the plot for reasons that go beyond excise rates.

There are many such things that will do wonders for the ‘real’ economy and the CV sector, and in turn create a virtuous cycle of growth.

Boardrooms And Fairways airs on WION on Saturdays and Sundays 10:30 hours and 16:00 hours IST

The author is a business journalist and an anchor at WION