Indian Budget 2023-24 series: EVs & Auto Industry
India is on the rise to become one of the largest economies in the world. You can check out the previously posted blog on the recently announced union budget, which talks about the provisions for infrastructure development, increasing infrastructure investment and budget allocations for MoRTH here. With India recently overtaking Japan to become the 3rd largest car maker in the world and the steady growth of electric vehicles in India, here are the key announcements for the development of the electric vehicles and provisions such as tax reductions and vehicle-scrappage from the budget:
- Allocation for FAME-II subsidy doubled to $627Mn.
- Import duty on Semi-Knocked Down (SKD) and Completely Built Units (CBU) vehicles increased.
- Budget provides for scrapping all old Government vehicles, expected to boost demand for new vehicles.
- Compressed Natural Gas will be exempt from the central excise duty as long as it is blended with compressed biogas. This move should encourage oil companies to add small amounts of sustainably made biogas to CNG, which should subsequently help keep CNG affordable.
- Reduction in individual tax slabs will benefit the entry-level two-wheeler and passenger vehicle segment.
Electric Vehicles –
India’s budget for 2023-24 is a clear sign of the country’s commitment to electrification. The increased import duty on Semi-Knocked Down (SKD) and Completely Built Units (CBU) vehicles and the doubled allocation for the FAME-II subsidy, totaling $627Mn will incentivize the growth of electric vehicle manufacturing in India.
Other countries have seen significant growth in the electric vehicle market after investing in similar initiatives. Norway, which has the highest per capita ownership of EVs in the world, offers a range of incentives such as tax exemptions and free parking to encourage the purchase of electric vehicles
Similarly, the increased investment in the electric vehicle market in India is expected to drive the manufacturing of EVs and related components, making it a lucrative market for companies globally.
Other provisions for the automotive industry –
The move to scrap old government vehicles and reduce individual tax slabs is expected to boost demand for new vehicles. This is a significant shift, as historical data suggests that such reforms in the automotive sector have led to a significant increase in demand for vehicles in the country. For example, India’s passenger vehicle market grew by over 8% in 2020, following the reduction in Goods and Services Tax.
Additionally, the exemption of Compressed Natural Gas from central excise duty, as long as it is blended with compressed biogas, is expected to encourage oil companies to add sustainably made biogas, making CNG more affordable and thereby increasing demand for CNG vehicles. Overall, the favorable provisions for EVs and the automotive industry keeping the end customer in mind will prove to be a huge step in India’s rise to the top of the global automotive market.
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