Auto players to benefit from tax sops and higher rural income

Two-wheelers and entry-level cars likely to see a huge surge in demand

Kanchi Shah

August 14, 2025 / 17:00 IST

The combination of higher savings, due to tax reductions, and stable economic conditions is expected to spur demand

Highlights:

Income tax exempted up to Rs 12 lakh
Government's rural development measures focus on accelerating agricultural growth
Companies focused on entry and mid-range segments to benefit

The 2025 Budget gave a much-needed boost to middle-class consumption through sweeping changes in the income tax structure. The government's decision to exempt income up to Rs 12 lakh from tax under the new regime indicates a significant shift towards easing the financial burden on the middle class. This comes at a time when the country is exhibiting slowdown in demand trends across urban and rural markets on account of sluggish consumer sentiments and high inflation.

The government's rural development measures focus on accelerating agricultural growth and fostering rural prosperity. To achieve this, several key initiatives have been introduced, including enhanced credit support through the Kisan Credit Card, targeted agricultural advancements under the National Mission on High Yielding Seeds, and the establishment of a dedicated Makhana Board in Bihar. Additionally, the Mission for Cotton Productivity aims to boost cotton yields, while the Prime Minister Dhan-Dhaanya Krishi Yojana is set to benefit 1.7 crore farmers across 100 districts, driving sustainable growth in the agricultural sector.

One of the major beneficiaries of this increase in disposable income will be the automobile industry. The combination of higher savings, due to tax reductions, and stable economic conditions is expected to spur demand, particularly for two-wheelers, entry-level passenger cars, and mid-range SUVs.

The two-wheeler and entry-level car segment, which caters to a broad consumer base, including young professionals and lower-income groups, is likely to see a surge in demand. Higher savings will enable first-time buyers to make purchases they may have postponed earlier due to financial constraints. Additionally, improved affordability may drive upgrades to premium models in the segments.

Companies like Hero MotoCorp and TVS are expected to benefit as they are popular among entry-level customers for motorcycles and scooters respectively. In passenger car vehicles, Maruti, being the market leader and having a range of cars for all segment customers, can benefit more from the budget.