The Balancing Act: Budget expectations of India's automobile sector

The Indian automobile industry is at crossroads, with competing interests vying for government attention and support. So will the Union Budget 2024, which will be tabled on July 23, offer a clear direction and pave the way for a smooth transition to a greener future?

At the heart of the debate lies the future of automotive propulsion technologies.

Hybrid cars: the ‘practical’ stepping stone

On one side, industry giants Maruti Suzuki and Toyota Kirloskar are advocating for reduced taxes on hybrid vehicles. These companies argue that hybrids offer a practical stepping stone towards full electrification, particularly in a country where charging infrastructure remains underdeveloped. Currently burdened with a steep 28 per cent GST rate, hybrid vehicles struggle to gain market traction despite their potential to significantly reduce emissions compared to conventional internal combustion engine (ICE) vehicles.

 

Meanwhile, the UP government has decided to waive off registration charges on strong hybrid vehicles certified under FAME programme. But there are other riders too which the state government will announce soon.

The EV & climate goals

On the other side of the spectrum, home-grown automakers Tata Motors and Mahindra & Mahindra are urging the government to maintain its focus on pure electric vehicles (EVs).

These manufacturers have invested heavily in EV technology and are reaping the benefits of the current favourable policy environment, which includes a mere 5 per cent GST rate on electric vehicles. They argue that diluting the focus on EVs could hinder India’s progress towards its climate goals and impede the growth of a nascent but promising industry.

The government has to strike a delicate balance. While the long-term goal of full electrification aligns with global trends and environmental imperatives, the immediate realities of the Indian market cannot be ignored. The lack of widespread charging infrastructure, high upfront costs of EVs, and range anxiety present significant hurdles to rapid EV adoption.

The middle ground

Industry experts hope that the budget might introduce a middle ground.

One possibility is a graduated tax structure for different levels of electrification, potentially offering some relief to hybrid vehicles while maintaining a clear advantage for fully electric options. This could encourage a broader spectrum of eco-friendly vehicles while still prioritising the ultimate goal of complete electrification.

Another key area of focus for the budget is likely to be support for charging infrastructure development. Increased allocation for setting up charging stations across the country could address one of the primary concerns hindering EV adoption.

Additionally, incentives for domestic battery production could help reduce the cost of EVs and decrease reliance on imports.

Skill development in the auto sector may also be addressed. As the industry shifts towards electrification and advanced technologies, there is growing demand for expertise in areas like battery technology and power electronics. Budget allocations for training programs and industry-education partnerships could help bridge this skills gap.

The vehicle scrappage policy might also feature in the budget.

Incentives for retiring old, polluting vehicles could boost demand for cleaner alternatives while addressing environmental concerns.

The upcoming budget presents an opportunity for the government to reaffirm its commitment to the auto sector’s growth while steering it towards a cleaner, more sustainable future. Balancing the immediate needs of the industry with long-term environmental goals will be crucial.