As Finance Minister Nirmala Sitharaman unveiled the Union Budget for 2024-25, the Indian automotive industry found itself in a peculiar position - neither elated nor entirely disappointed. The budget, while addressing broader economic concerns, left the auto sector yearning for more targeted support, especially in the realms of electric vehicles (EVs) and hybrid technology.
The industry's reaction to the budget was akin to a driver navigating through rush hour traffic - moving forward, but not quite at the desired pace. Whilst the budget introduced measures to support MSMEs and skill development, it fell short of the sector's expectations, particularly in the EV and hybrid segments.
Kunal Arya, Co-Founder and Managing Director of ZELIO, encapsulated this sentiment, stating, 'While the budget's focus on job creation in the manufacturing sector is commendable, the lack of targeted measures for the EV sector is disappointing. More funding for EV charging infrastructure is essential for building consumer confidence and accelerating EV adoption.'
The government's decision to increase allocation for the Production Linked Incentive (PLI) scheme for automobiles and auto components from Rs 604 crore in FY24 to ₹3,500 crore in FY25 was a silver lining. However, this came alongside a reduction in the allocation for the FAME (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles) scheme, from Rs 5,171.97 crore in FY24 to Rs 2,671.33 crore in FY25.
Optimism Amidst Concerns
Vinod Agarwal, President of SIAM and MD & CEO of VECV, found reasons to be optimistic. He highlighted, 'The liberal allocation for rural development & infrastructure of Rs 2.66 lakh crores is a welcome step that will boost the rural economy.' Agarwal also praised the budget's measures for skilling, upskilling, and support to MSMEs, viewing them as propellants for the Indian auto industry's growth.
The industry's mixed feelings were further reflected in the words of Santosh Iyer, MD & CEO of Mercedes-Benz India. 'We were expecting GST announcement of the long-term continuation of reduced GST for Battery Electric Vehicles (BEVs),' Iyer noted, adding, 'However, developing a climate finance taxonomy to aid capital for climate adaptation and mitigating climate change, is a step in the right direction for achieving climate commitments.'
One of the budget's most welcomed aspects was the exemption of customs duty on critical minerals like lithium, copper, and cobalt. Rajeev Chaba, CEO Emeritus of JSW MG Motor India, saw this as a positive step, stating, 'This move will reduce battery manufacturing costs, making EVs more affordable and attractive. It will also enhance lithium-ion battery production in India, supporting localisation efforts and advancing the sector's growth.'
Missed Opportunities for EV and Hybrid Transition
However, industry analysts pointed out that the budget missed opportunities to provide clearer support for both the EV and hybrid vehicle transition. Soumen Mandal, senior analyst at Counterpoint Research, observed, 'There's no mention of the FAME3 scheme, which the industry had anticipated. Additionally, there's a noticeable absence of clear allocations for crucial areas like charging infrastructure and battery recycling. The lack of incentives for hybrid vehicles is also a concern, given their potential as a stepping stone towards full electrification.'
The absence of specific EV and hybrid-focused initiatives was particularly noticeable given the government's ambitious target of making 30 per cent of total vehicle sales electric by 2030. The industry had hoped for increased subsidies for EV and hybrid vehicle buyers, encouragement for battery manufacturing plants, and a comprehensive Battery Swapping policy. Moreover, the continued high taxation of hybrid vehicles at 43 per cent, just below the 48 per cent for conventional internal combustion engine vehicles, was seen as a missed opportunity to promote this transitional technology.
Despite these shortcomings, some industry leaders found reason for optimism in the budget's broader economic focus. Pawan Munjal, Executive Chairman of Hero MotoCorp, welcomed 'the Union Budget 2024-25 with its forward-looking initiatives to boost job creation with focus on urban infrastructure and strengthening the manufacturing sector.'
As the dust settles on Budget 2024, the Indian automotive industry finds itself at a crossroads. Whilst the budget has laid groundwork for overall economic growth, the sector's journey towards an electric and hybrid future seems to have hit a speed bump. The coming months will reveal whether this budget's indirect benefits will be enough to keep India's automotive dreams on track, or if additional policy support will be needed to accelerate the industry's transformation across all alternative fuel technologies.
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