Impact of Budget 2025-26 on Auto Sector & Two-Wheeler Financing

In the Union Budget 2025, the Finance Minister made some significant announcements impacting the Indian automotive sector. These include incentivising the manufacturing of electric vehicles, revising the import duty, and investing in infrastructure.

According to the Budget 2025-26 auto industry analysis, many perceive it as a step to strengthen the country’s position as a major automotive hub worldwide, making EVs more affordable and accessible.

In the following sections, we will look at the Budget 2025-26 impact on the auto sector.

Key Budget Announcements Affecting the Auto Sector

Following are the key Budget announcements affecting the auto sector:

• Electric Vehicle Incentives and Localisation: The Budget 2025 includes a waiver of customs duties on 35 capital goods essential for manufacturing EV batteries. This announcement aims to make electric vehicles more affordable by reducing battery manufacturing costs.
• Increased Tax Exemption: The Budget increases the income tax exemption limit to Rs 12 Lakh (12.75 Lakh including standard deduction). This is expected to increase disposable income, potentially boosting demand for vehicles, including two-wheelers.
• Priority to Domestic Auto Production: With Budget 2025-26 electric vehicle incentives, the National Manufacturing Mission encourages local production of EV batteries, controllers, motors, and high-voltage components.

Impact on Domestic Automobile Manufacturers

The Budget 2025-26 impact on the auto sector has been positive for the domestic industry, as it aims to reduce costs, increase demand, and encourage local manufacturing. Here is how the Budget will impact the industry:

• Manufacturing Support: The Production-Linked Incentive (PLI) scheme aims to boost the manufacturing of EVs and related components.
• Tax Relief: Budget 2025-26 tax reforms for the auto industry include waiving custom duties on critical EV components and minerals, making them more affordable for manufacturers.
• Infrastructure Development: The Budget supports infrastructure development for the growth of EVs.
• Income Tax Restructuring: Budget 2025-26 EV subsidies and restructured tax slabs increase the auto demand.

Also Read: Key Highlights of the Union Budget 2025-26

Two-Wheeler Market-Specific Implications

Here are some two-wheeler market-specific implications of Union Budget 2025-26:

• Increased Affordability: Tax relief for the middle class is expected to spur demand for two-wheelers.
• Boost to EV Manufacturing: Exemption of Basic Customs Duty on specific capital goods for lithium-ion battery production promotes domestic EV manufacturing.
• Focus on Rural Markets: Increased disposable income in rural areas, coupled with government schemes, is expected to drive demand for affordable two-wheelers.

Changes in Two-Wheeler Financing Landscape

In the 2025-26 Budget two-wheeler financing landscape, the key change impacting the financing industry is a boost in demand. It comes from the higher disposable income of people due to reduced tax implications. Let’s look at the key changes:

• Increased Affordability: The increased income tax exemption limit puts more money in people's pockets, leading to a higher demand for two-wheelers, ultimately increasing the demand for Two-Wheeler Loans.
• EV Incentives: Reduced customs duty for EV components makes the vehicles more affordable, thus stimulating the demand for two-wheeler financing.
• Rural Income Boost: Schemes like the "Dhan Dhanya Krishi Yojana" boost rural income, driving demand for EVs in rural areas and potentially boosting the need for loans.

Industry Reactions and Future Outlook

The automotive industry of India has shown mixed reactions to the impact of the Budget 2025-26 auto sector. These are as follows:

• Focusing on economic growth and entrepreneurship, the Budget sets the stage for great affordability, innovation, and mobility adoption.
• The Budget recognises the MSME contributions to enhance credit access and facilitate technological development.

Also Read: 10 takeaways from Budget 2025 for the MSME Sector

Conclusion

Union Budget 2025-26 is perceived as a strategic catalyst to elevate the greener and more sustainable automotive industry. Higher disposable income and incentivised manufacturing will likely encourage the demand for two-wheelers in India as per Budget 2025-26, boosting the demand for two-wheeler financing. Hero FinCorp offers loans at a competitive Two-Wheeler Loan interest rate to help you with your purchase.

Frequently Asked Questions

1. What is the economic impact of the automobile industry?

The automobile industry significantly impacts the country's economy by contributing to GDP, exports, and employment.

2. What are the challenges facing the automobile industry in India?

Supply chain issues, inventory management, regulatory changes, environmental concerns, and consumer purchasing power are major challenges the Indian automobile industry faces.

3. What are the factors affecting the automobile industry in India?

Economic fluctuations, inflation, fuel prices, environmental factors, and regulatory changes affect the Indian automobile industry.

4. Who benefits from a balanced budget?

Everyone benefits from a balanced budget, including the government, consumers, lenders, investors, and manufacturers.

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