According to a report by Jefferies, the Union Budget 2025-26 has increased the income tax exemption threshold to $13,775, which is likely to fuel demand for two-wheelers and passenger vehicles. The tax reductions are set to benefit middle-class taxpayers, collectively saving around $11.48 billion. This financial relief is expected to enhance discretionary spending, especially in urban areas. The analysis estimates that roughly 35 million taxpayers will receive an annual tax benefit of $344 each, significantly influencing automobile purchases. With the passenger vehicle market anticipated to reach 4.3 million units and two-wheeler sales projected at 21 million in FY25, increased consumer spending power is likely to stimulate growth. Additionally, scheduled salary hikes for public sector employees in FY27 are expected to further boost the automotive industry, with two-wheelers predicted to expand at a 13% compound annual growth rate (CAGR) from FY25 to FY27.
The report highlights that two-wheelers and tractors are poised for robust growth, with an estimated 13-15% CAGR, while passenger vehicles are expected to sustain a healthy 9% CAGR. Furthermore, the budget’s emphasis on fiscal consolidation may enable the Reserve Bank of India to adopt a more supportive monetary policy stance in its upcoming review on February 7, 2025. A favorable macroeconomic environment could reinforce the momentum in the automobile sector, driving further expansion in the years ahead.