As of 1st January, 2015 the Government of India had rollbacked the tax benefit provided to vehicle manufacturers. The benefit of all this was passed onto the customer, which reduced the price of vehicles significantly.
Now in a bid to boost sales of vehicles once again Reserve Bank of India has introduced a new policy. They have decided to decrease interest on loans by 0.25 percent, this will make loans cheaper for individuals. This is expected to fuel sales and help individuals buy vehicles more easily.
RBI has promised to lower interest rates further if the economy is strong as it currently is. The last time interest rates were decreased 20 months ago during May, 2013. They have now moved the reverse repo rate lower to 25 basis points.
Many manufacturers have announced that the decrease in interest rates is a welcome change, however, it has come later than they had initially expected. Most individuals were expecting a bigger rate cut of nearly 50 basis points, but this has not happened and many manufacturers were taken aback.
VS Parthasarathy, Chief Financial Officer, Group CIO, EVP – Group M&A & Member of the Group Executive Board, Mahindra & Mahindra Ltd commented, "On the auspicious occasion of Pongal, Makar Sankranti and Uttarayan, the RBI Governor has extended the Prasad of rate cut. The sweetness is doubled due to the surprise announcement and provides wind in the sails of economic activity."
He further added, "Though there could be views that the cut could have been deeper, it is not the size of the cut, rather the direction of interest rates that the RBI has signalled through this cut that is meaningful. The RBI's reading of inflation and inflation expectations have given a further boost to positive sentiments."