Repo rate cut, tax relief for middle class to create demand stimulus: M&M’s Anish Shah

The repo rate cut by the Reserve Bank of India’s monetary policy committee (MPC) and tax breaks for the middle class will create a demand stimulus for automakers, according to Mahindra & Mahindra Group CEO and MD Anish Shah.

“The fundamentals of the Indian economy are very strong. We have seen some blips in the short run. The relief in terms of taxation for middle class puts more money in their hands and it will create a demand stimulus which is going to help and in turn translate into greater capex from the private sector as well, an area which has been lacking in some way. The rate cut will also help in creating a little bit more of a demand stimulus,” Shah says in a media conference call after the company announce its third quarter earnings. “Both are positive moves from an economy standpoint,” says Shah.

The Reserve Bank of India’s MPC unanimously slashed the repo rate, the first cut in nearly five years, by 25 basis points to 6.25% after keeping the key policy rate unchanged for eleven consecutive meetings. This is expected to help in sales of small entry-level cars which have been on a decline over the past few years due to price hikes and stagnant wages, making them unaffordable to a large section of people.

For Mahindra & Mahindra, compact SUV 3XO stands to gain from the income tax cut. “3XO will see better traction because it goes in the salary segment,” says Rajesh Jejurikar, executive director and CEO, Auto and Farm Sector, M&M.

Welcoming the rate cut, FADA president C S Vigneshwar says the RBI’s decision to cut the repo rate signals a constructive policy shift that prioritises economic growth while maintaining a watchful eye on inflation. “With auto loans set to become more affordable, we expect stronger demand in the price-sensitive two-wheeler and entry-level car segments, which have faced the brunt of steep price hikes and affordability concerns,” says Vigneshwar.

FADA says the repo rate cut dovetails seamlessly with the Finance Minister’s recent announcement of tax exemption for those earning up to ₹12.75 lakh, thereby enhancing consumers’ disposable income. “When combined, these measures could reinvigorate segments that have been lagging, helping them catch up with the broader market. FADA lauds the RBI for facilitating growth while remaining ‘neutral’ on inflation and we anticipate this rate cut will lend much-needed momentum to India’s Auto Retail sector in the coming months,” says Vigneshwar.

Commenting on the repo rate cut today, Shailesh Chandra, president, SIAM and managing director of Tata Passenger Vehicles Ltd and Tata Passenger Electric Mobility Ltd, says the reduction in rates at this time, closely following the relaxation in income tax for individuals in the recent budget would certainly have a positive impact on the auto sector, as it will increase accessibility by reducing the financing costs, thereby creating a positive sentiment across the market.