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The country's automobile sector posted a significant 54% growth, according to the Pakistan Economic Survey 2021-22 that was unveiled on Thursday.

“Automobile sector marked a vigorous growth of 54.1% during July-March FY2022 against 21.6% growth last year,” read the Economic Survey document.

Meanwhile, overall growth of the Large-Scale Manufacturing (LSM) clocked in at 10.4% during July-March FY22 as compared to growth of 4.2% in the same period last year.

“The new auto policy to promote new technologies including Electric and Hybrid Vehicles, and accommodative monetary policy to promote auto financing paved the way for higher automobiles production,” it added.

However, the country has yet to see assembly of either Hybrid or EVs.

Currently, Indus Motor Company is in the process of establishing a $100-million plant for hybrid vehicles, but it is expected to become operational by 2023.

“Tax incentives to promote locally manufactured cars also jacked up demand. Sales tax was reduced from 12.5% to 8% and FED reduced by 2.5% up to 1,300cc for locally manufactured cars,” the document added.

Moreover, during July-March FY2022 car production and sale increased by 56.7% and 53.8%, respectively.

Trucks and buses' production and sale increased by 66% and 54%, respectively, and tractor production and sale increased by 13.5% and 12.1%, respectively.

Though relief measures in the form of waiving of taxes incentivised the sector, it reduced revenues of the national exchequer and built pressure on imports besides creating uncertainty in market sentiment.

After six months, the government reversed the tax incentives for the auto industry in the supplementary Finance Bill or mini-budget in January.

Meanwhile, the State Bank of Pakistan (SBP) also put restrictions such as decreasing tenure and increasing down payment percentage from 15% to 30% on auto financing in September last year as it moved to curb demand amid a growing import bill.

Auto sales to increase in May, but a slowdown is right around the corner in Pakistan

Sources in the auto industry and experts say the volumes may come down by up to 25% amid rising car prices, increase in inflation and central bank’s restrictions on auto financing.

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