Union Budget 2024 can draw a roadmap to spark India’s electric vehicle revolution

The upcoming Union Budget 2024 is likely to draw the roadmap to accelerate India’s electric vehicle ambitions, with the Narendra Modi government targetting 30 per cent of auto sales shares by 2030 to be that of electric variety.

From allocating a higher budget for EVs’ expansion to extending related subsidy schemes, the Modi government is expected to undertake several initiatives to see its EV goal through, as per experts.

India’s EV acceleration has been backed by the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) policy for electric two, three, and four-wheelers, which could receive a budgetary allocation of about Rs 10,000 crore, people familiar with the deliberations told ET.

The Ministry of Heavy Industry, which administers the scheme, has already sent a plan for vetting to the Prime Minister’s Office (PMO). A final call on the proposal, however, will be taken closer to the budget, keeping the fiscal situation in view, reported ET, quoting its sources.
Industry players were expecting Finance Minister Nirmala Sitharaman to elaborate on the FAME-III policy come July 23, however, Union Minister HD Kumaraswamy recently said that policy formulation is in the last stages and might not find a mention during the Budget announcement.

The new coalition government is likely considering allocating a larger fund for faster adoption of EVs in the main budget in July 2024, ET recently reported citing people in the know.

Recently, the stakeholders of the EV Industry and the Ministry of Heavy Industries proposed the extension of the EV subsidy scheme with a focus on public electric transportation and the expansion of charging stations.

Key EV boosters Budget can focus on

Stakeholders and experts have sought incentivising capital expenditure on EVs, increasing depreciation rates on plant and machinery and rationalising GST rates on EVs and its components, ahead of the upcoming Budget 2024-25.

"ACMA is looking forward to a growth-oriented budget with continued thrust on reforms and infrastructure development. Schemes such as the PLI have been of great support to the automotive industry, and we are hopeful that such measures will be continued,” said ACMA President & CMD Subros Ltd, Shradha Suri Marwah.

Despite nascent developments in India’s EV infrastructure, there has been a positive reciprocation for the electric variety.

The overall sales of electric passenger vehicles jumped 91 per cent year-on-year to 90,996 units in FY24, while the retail sales of electric commercial vehicles rose three-fold in the same time, according to automotive dealers' body FADA.

However, for the users in India to adopt EVs widely in the country on a sustainable and long-term basis, there is a need to address the infrastructural cost.

“The fundamental problem of charging infrastructure needs to be addressed. The government should classify charging infrastructure under the infrastructure industry,” said Ashish Bagadia, Partner, Corporate Finance and Investment Banking at BDO India.

“The main cost of EV charging setup requires three elements: electricity, real estate, and financing. While the government cannot control electricity and real estate charges, it should work on reducing the cost of financing. By classifying charge point operators under priority sector lending, the financing cost can be reduced,” Bagadia added.

Accelerating India’s EV adoption

The company with the biggest share in India’s evolving EV industry, Tata Motors, expects policy continuity to make the EV industry self-sufficient, in the forthcoming Union Budget.

Shailesh Chandra, Managing Director, Tata Motors Passenger Vehicles and Tata Motors Electric Mobility said, "As far as the budget expectation is concerned, the government has been crystal clear and supportive of accelerated penetration of electric mobility in the country. We have schemes such as GST and PLI, among others.”

He further advised that the government policy on EVs should continue until 15-20 per cent penetration level is reached in the electric vehicle space. "So what we would expect (in the Union Budget) is that the policy continues till this (electric vehicle) industry becomes self-sufficient," Chandra noted.

Chandra added that there should be a stronger focus on policy support towards charging infrastructure, which is one of the " barriers" for electric vehicle penetration.

In addition, the success of EV penetration in India is incumbent on infrastructure. With sparse charging stations, EV holders may find themselves in a tight spot as soon as their battery depletes.

“Batteries constitute 40 per cent of the cost of EVs. The government has helped battery makers through PLI and other schemes and it should allow these measures to deliver results. Accelerated depreciation benefits or tax exemptions would be beneficial in reducing the total cost of ownership. Some of these measures will also help pace the fund outflow from the government exchequer,” said Bagadia.

Budget can help India’s EV biz match up with China

India is currently not a hub for EV battery manufacturing unlike China, which dominates the sector globally. To address the persisting issue, the government has implemented policy initiatives and joint collaborations between Indian and international firms among others to set up production facilities.

“Despite creating a market for EVs and thus battery demand, these policies can only go so far in promoting adoption and growth. Therefore, there is a need for long-term policy and regulatory support. This support should focus on streamlining the establishment and operation of battery manufacturing facilities while ensuring that environmental regulations strike a balance between sustainability and industrial growth,” said Thirumalai NC, Sector Head – Strategic Studies at Center for Study of Science, Technology and Policy (CSTEP).

The Ministry of Heavy Industry recently informed the Rajya Sabha that the entire budgeted allocation under FAME II was used up in the first three years, beginning from 2019-20, falling marginally in 2022-23. Despite being a vote on account budget, there was a 44 per cent slash in the budget allocation for FAME-III.

FM Sitharaman in February 2024 during the Interim budget announcement allocated nearly Rs 2,671 crore for its flagship FAME scheme but details of it are likely to be announced by the newly-formed government in the main budget in July 2024, experts are hoping.

A new boost to India’s EV industry

Recently, the government announced the Rs 500 crore Electric Mobility Promotion Scheme (EMPS) 2024 plan to subsidise two and three-wheelers. The EMPS scheme extended incentives of up to Rs 10,000 per electric two-wheeler, and up to Rs 50,000 per electric three-wheeler.

In addition, per unit subsidies under both these categories have been scaled down to less than half of what was being offered under FAME-II.

EMPS sops were available only to companies with an established local manufacturing capacity in India. This was a deviation from FAME-II, which hinged on a phased manufacturing programme (PMP) to progressively increase local EV-making capabilities.

In addition to these, the EMPS was extended only to those vehicles fitted with advanced batteries to prevent mishaps.

Source:-  Economic Times