By putting rural infrastructure on priority, FM has brought relief for Auto industry

New Delhi: Union Finance Minister Nirmala Sitharaman recent announcement to upgrade rural infrastructure came as a big relief for the Indian auto sector. In a much needed stimulus, Nirmala Sitharaman proposed a hefty investment of Rs 80,250 crore for a period of 5 years to upgrade 125,000 km of rural roads of the country.

As per industry estimates, rural market contributes around 15-20 per cent of automobile sales for Indian auto sector, which majorly cover the sales of tractors, motorcycles, and commercial vehicles.

Due to delayed monsoon and liquidity crunch, Indian market began to show sales de-growth from November last year as rural income began to shrink with falling farm outputs. To energise this sector and revive consumer sentiments, experts believe that the move will accentuate the opportunity of indirect revenue generation.

To resolve the liquidity issue, Sitharaman allowed Foreign Institutional and Portfolio Investors to invest in debt securities offered by non-banking financial companies (NBFC), which will help the shadow banks in raising funds.

Plus, For financially sound NBFC, Government will provide one time 6 month partial credit guarantee for PSB. As buyers of tractors and commercial vehicles are heavily dependent on loans from NBFC's, analysts reckon that steps to improve liquidity available to the NBFCs a positive for automotive demand.

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