Budget 2024: Auto sector eyes EV incentives to push entry-level cars

India could unveil an expanded third phase of the FAME incentive scheme for EVs in the interim budget, enhancing it to support mass transport

The automobile industry, specifically electric vehicle companies, are hopeful of supportive measures in the interim budget to spur the adoption of battery-powered cars and two-wheelers.

While some are advocating changes in the goods and services tax regulations, others seek greater clarity on the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME III) scheme, its possible extension, a new FAME scheme, and a push for charging infrastructure.

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The February 1 budget is an interim one before the general elections are held in May. Finance Minister Nirmala Sitharaman has indicated there will be "no spectacular announcements" in the interim budget.

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"The government is likely to concentrate on boosting rural consumption, supporting discretionary spending. This focus is expected to benefit rural-focused two-wheeler and entry-level four-wheeler OEMs (original equipment manufacturers) and auto ancillary companies supplying to such OEMs," Axis Securities said in its pre-budget report.

The industry expects benefits under the FAME programme to continue, potentially with some rationalisation.

EV push, battery parity

Analysts at Axis suggested that with the increasing significance of EVs, the government may announce production-linked incentives for battery makers and others in electric power manufacturing and storage.

Experts are eyeing parity or a reduction in GST on components used in making EVs and batteries. EVs sold with fixed batteries are taxed at 5 percent and lithium-ion batteries utilised for swapping are taxed at 18 percent.

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“GST charged on the lithium-ion battery packs and cells and charging stations meant specifically for e-vehicles should also be at par with that of the fitted EVs lithium-ion batteries at 5 percent. Additionally, import duty on lithium-ion battery cells should be removed as it is not being manufactured in India,” Unnati Jadav, lead analyst at KRChoksey, told Moneycontrol.

"Budget 2024 should continue the existing concessional rate of import duties on lithium-ion cells to reduce the capex cost of purchasing an EV," said Nimish Trivedi, co-founder of Evera, an electric cab service company in New Delhi.

Experts suggested that recognising the pivotal role of sectors such as charging solutions and battery technology, and collaborative initiatives involving the government, industry, and fintech entities are crucial for enhancing affordability. Government support could empower private companies to expand charging infrastructure, generate employment and stimulate economic growth by promoting the adoption of EVs.

India could unveil an expanded third phase of the FAME incentive scheme for EVs in the interim budget, enhancing it to support mass transport and alternative fuels. The budget could set aside Rs 10,000-12,000 crore for the third instalment of the FAME scheme, according to reports.

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"FAME III will be focused on mass transport such as buses, and personal mobility for two-wheelers while also encouraging adoption of alternative fuel vehicles like hydrogen-powered ones," a heavy industries ministry official said.

Previous measures

In the Union Budget 2023, the finance minister had a slew of announcements for the automobile sector. Notably, customs duty on goods and machinery used to make lithium-ion cells for EV batteries was scrapped. A policy was introduced to scrap all state and central government-owned vehicles including buses that have been on the road for 15 years.

“The beginning of fitness testing of commercial vehicles from April 2023 and the likely start of the same for passenger vehicles from June 2024 under the vehicle scrappage policy will support the industry growth in the short-medium term,” Jadav added.

In 2022, a policy was introduced to enable the setting up of battery-swapping stations and technology, fostering a transition from petrol and diesel-powered vehicles to EVs.