Impact of Union Budget 2017-18 on India Tire Industry

India: Tire industry players in India were looking forward for positive announcements from the Union Budget 2017, nothing specific was stated for the automobile tire industry. One major area where automotive tire industry expected some relaxation was changes in import duty structure for finished goods and raw materials. The industry was expecting a rise in import duties of finished tires and reduction in import duties of raw material for rubber industry to keep itself at a level playing ground with imported tire brands. Though, nothing specific about import duty structure has been highlighted in the budget 2017, some of the announcements are expected to have an indirect positive impact on automotive tire industry in India.

Union budget 2017 has lowered the bracket of personal income tax from 10% to 5% for individuals earning under INR 500,000. This move would help in increasing the disposable income of individuals, thereby creating a positive impact on passenger car and two-wheeler sales, both in rural and urban centers. Increase in passenger car and two-wheeler sales is expected to positively impact the OEM demand for passenger cars and two-wheeler tires. Further, it will also help in increasing the fleet size for both vehicle segments, and thereby impact the country’s replacement tire market in a positive way.

Further, the government has announced an allocation of INR 396,135 crore for development and strengthening the country’s infrastructure. Budget allocation for National Highways, which stood at about INR 57,676 crore in the 2016-17 Budget, has been increased to INR 64,000 crore in 2017-18. Also, government of India is committed towards constructing 1 crore houses by 2019. Focus on infrastructure development and housing schemes is expected to increase construction activity across India, thereby boosting demand for commercial vehicles and off-the-road vehicles, which is expected to boost the commercial vehicle and off-the-road vehicle tire sales in the country.

Further, the Union Budget has allocated about INR 58,663 crores for agriculture and allied sectors during 2017-18. Target for agricultural credit for 2017-18 is set at 10 lakh crores by the government of India.

TechSci Research believes that announcements made by Finance Minister, Arun Jaitley to increase focus on rural development, strengthen infrastructure and boost disposable income of working class, would have a positive impact on the country’s tire industry. However, due to no changes on import duty structure in the current budget, demand for Chinese tires is expected to remain on the higher side, specifically in the commercial vehicle segment, and consequently, domestic tire suppliers must focus on new innovative methods to compete in India tire industry.

According to a recent report published by TechSci Research, “India Tire Market Forecast & Opportunities, 2021’’, the country’s tire market is forecast to witness a CAGR of over 9% during 2016 - 2021. Though the replacement tire demand had a majority share in 2015, the OEM tire demand is expected to outpace replacement tire demand during 2016-2021. In 2015, Northern region accounted for the largest share in India’s tire market, followed by Southern, Eastern, and Western regions of the country. Over the next five years as well, Northern and Southern regions are forecast to continue their market dominance and grab a cumulative market share of nearly 59% by 2021. Two-wheeler tire segment, which accounted for a volume share of over 50% in the country’s tire market in 2015, is also expected to maintain its position as the largest tire segment over the next five years.