The automotive industry was upbeat about India’s latest Union Budget 2023-2024 which was unveiled by Finance Minister Nirmala Sitharaman on February 1. The “Amrit Kaal” budget – the first budget in the lead up to India’s 100th-year milestone in 2047 – prioritized ‘Saptarishi’ or seven areas: “inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth and financial sector.”
With its focus on growth, infrastructure development, and sustainable mobility, the Budget promises to energize the country’s automotive sector which contributes around 7% to India’s GDP and is a leading employment provider.
Top Highlights for the Automotive Industry
1. Capital investments registered a significant hike for the third year in a row. The ₹10 lakh crore allocation marks an overall 33% increase in capital expenditure outlay. Around 100 critical transport infrastructure projects for ports, coal, steel, fertilizers, and food grain sectors have been earmarked for improvements in end-to-end connectivity, backed by a ₹75,000 crore priority investment. Such capital investments, together with the thrust on rural housing schemes, are set to positively impact the commercial vehicle segment in the form of higher demand for light- and heavy-duty trucks and construction transport equipment.
2. As India sets out to achieve its objective of net zero by 2070, ₹35,000 crores has been allotted to priority capital investments to accelerate low carbon energy transition and improve energy security. Among the areas of “green growth” include green fuel, green energy, green farming, green buildings, green equipment, and green mobility.
3. Continued subsidies and incentives for domestic EV manufacturing, doubling of allocation for FAME 2 scheme, and bridging of viability gap funding for battery energy storage system resonate with the green mobility agenda
4. With a view to encouraging domestic lithium-ion battery production, lowering electric vehicle (EV) prices, and promoting customer uptake, customs duty exemption has been extended to imports of raw materials, capital goods, and machinery used for the production of lithium-ion batteries for EVs until March 31, 2024.
5. The mobility industry is looking at Aatmanirbhar Bharat and ‘Make in India’ to strengthen economic self-sufficiency and technological leadership. The increase in customs duty on imported vehicles, including EVs, from 60 to 70% in completely built units (CBUs) and from 33 to 35% in semi knocked down (SKD) units seek to facilitate ‘Make in India’ EV manufacture. This will boost EV ecosystem development, domestic capacity expansion, and cost competitiveness.
6. The recently launched National Green Hydrogen Mission has received an infusion of ₹19,700 crores to “facilitate transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports, and make the country assume technology and market leadership in this sunrise sector.”
7. Despite the gaffe when discussing old vehicle replacement – the Finance Minister referred to them as “old political vehicles” instead of “old polluting vehicles” – the forward-looking policy looks to build on gains made under previous vehicle scrappage initiatives. Funds will be allocated to scrap and replace old vehicles, including ambulances, owned by Union and State governments. On the one hand, this will spur the transition to more sustainable, low emission, alternative energy transport in the public sector, while, on the other, it will provide stimulus for fleet upgrades.
8. Changes in personal income tax with the hike in tax rebate limit from ₹5 lakh to ₹7 lakh holds promise of translating into higher consumption expenditure, including on vehicle purchases.
9. The Railways have been allocated ₹40 lakh crores, the highest ever capital outlay provided, to boost network expansion and upgrades. This comes at a time when India’s first indigenously produced, semi high-speed Vande Bharat trains are taking off. Manufacture of high-speed trains are poised to expand from just the single site at the Integral Coach Factory in Chennai, to Latur (Maharashtra), Rae Bareilly (Uttar Pradesh) and Sonipat (Haryana). As part of the “green” agenda, production of a hydrogen train is slated by end of 2023.
10. The Aviation industry has received ₹3,000 crore allocation aligned with the ‘Ude Desh ka Aam Nagrik’ (UDAN) scheme that seeks to improve regional connectivity.
India’s transition to a low-carbon economy with a net zero goal for 2070 will advance sustainability agendas in the automotive industry. The Budget’s thrust on vehicle electrification, coupled with the promotion of alternative fuels and circular economy practices, will fast-track the shift towards green mobility. Local production of EVs will receive a fillip from the 21% to 13% customs duty reduction on lithium batteries and the extension of subsidies on EV batteries for one more year. The prioritization of the National Green Hydrogen Mission, along with the target of achieving 5MMT annual production of green hydrogen by 2030, will provide a clear framework within which to spur alternative energy adoption. The announcement of 500 new ‘waste to wealth’ plants under Galvanizing Organic Bio-Agro Resources Dhan (GOBARdhan) scheme, including 200 compressed biogas (CBG) plants and 300 cluster-based plants at an investment of ₹10,000 crores, will underline the potential for expanded deployment of renewable, CBG fuel gas in vehicles.
Overall, the budget will back its focus on green growth with infrastructure creation and targeted incentives that will strengthen India’s automotive industry. Having struggled these past few years, stakeholders will look to the budget to drive multiplier effects. That said, continued long-term investments will be crucial to facilitating the transition to a resilient, future-focused green economy.