2012 Budget Reaction - Mahindra & Mahindra

Against the backdrop of some signs of an economic deceleration, the finance minister has delivered a budget with good intent. The budget has clear emphasis on key areas of infrastructure, agri-development, healthcare and education. Finance minister surely has set the priorities right.

From the macroeconomic perspective, the accelerated growth forecast of 7.6 per cent in FY13 and the attempt to control the fiscal deficit to 5.1 per cent are steps in the right direction. However there is some level of apprehension on whether these targets can be achieved. Though there has been no big announcement on the rural side, the package of initiatives focusing on farm productivity, transportation efficiency, warehousing and micro-irrigation are all positive signs and augurs well for the economy overall as well as for Mahindra.

Specific to automotive industry, the industry is relieved that the FM did not take any retrograde step like imposing a tax on diesel vehicles. The excise duty hike was in a way expected and we will have to pass on the price increase to the consumer. However, with all the surcharges and special levies, the top excise duty rate is as high of 29 per cent. I believe this is simply too high!

For Mahindra vehicles, the price increase would be as low as Rs3,000 to a maximum of Rs35,000 depending on the product category. On the tractor side, service tax and excise duty hike will also increase overall input cost and therefore an immediate increase of Rs 3,000 - 5,000 is expected. We expect some short term negative impact on demand but with time we think it will wear off.

Other positive steps are extension of weighted deduction of R&D by five years, introduction of weighted deduction for skills development and reduction in taxes and duties for hybrid and electric vehicle components.

On the concerns side, is the inadequacy of the initiatives to provide the push to manufacturing, for achieving the targets laid out in the National Manufacturing Policy, of achieving 25 per cent share of GDP in next 10 years. I would have liked the budget to lay out some concrete steps in this direction. I would have also liked to see a more definitive statement on timeline for GST and DTC.