Budget 2024: From green mobility to infra building; here's auto industry's wish list

In 2023, the automobile industry crossed the crucial 4 million sales mark for passenger vehicles. The sales of the two-wheeler, three-wheeler and commercial vehicle segment also witnessed double-digit growth. Ahead of the interim budget 2024, automobile manufacturers are anticipating policies that could further maximise this growth including the country's electrification target.

"We expect capex on infrastructural projects to continue, aiding the automotive sector. The policy push for green mobility should remain a key focus for the government, encouraging faster adoption of electric vehicles. The luxury car industry has a significant value contribution to the GDP and our wish for a rationalized duty structure and GST stays on priority. Overall, we expect consistency in various policies and no surprises in the upcoming budget," says Santosh Iyer, CEO & MD, Mercedes-Benz India.

Notably, automobile manufacturers also anticipate the extension of the FAME-II (faster adoption of manufacturing of hybrid and electric vehicles) scheme in the forthcoming budget further to drive the growth of electric two-wheelers and three-wheelers. 

Sulajja Forodia Motwani, founder and CEO, Kinetic Green, opines that the suspension of the FAME-II subsidy will not only lead to a decrease in the EV demand but might also lead to higher imports of EVs. "The most important expectation and demand from the EV sector in the Union Budget 2024 is the continuation of demand incentive schemes for EVs with the FAME III scheme. We strongly feel that if the FAME II demand incentive scheme is suddenly discontinued in March 2024, thereby leading to a significant increase in the prices of EVs, it will lead to a reduction in demand. As a country, we will lose the momentum we have garnered towards a rapid transition to green transport. It may also lead to higher imports and loss of gains in Make in India for electric vehicles and their components. A clear and consistent demand generation roadmap is critical for continued and enhanced investments in e-mobility," says Motwani.

Motwani also calls upon the inclusion of electric vehicle financing under priority sector lending as well as a strong export incentive policy for the export of EVs. 

Meanwhile, NP Sridhar, CEO,  Titan Engineering and Automation Limited (TEAL), observes that the overreliance on imports poses challenges in terms of cost, supply-chain disruptions, and economies of scale. “The powertrain, which is the heart of EV vehicles and contributes significantly to their cost, comprises many components that are currently imported. Even the equipment required to manufacture these components, such as batteries and power packs, is also imported. As the adoption of EV vehicles grows, the localisation of components, equipment, and technology requires immediate attention. Overreliance on imports poses challenges in terms of cost, supply-chain disruptions, and economies of scale. The pressing need is to nurture in-house capabilities for manufacturing in the EV industry,” Sridhar says.

Sridhar urges the government to consider incentivizing the development and manufacture of capital goods for the EV segment, including machinery for cell manufacturing, battery packs, assembly automation, and testing systems.

Niranjan Nayak, MD, Delta Electronics India observes that incentives for purchasing and manufacturing of EVs will effectively drive demand and lower upfront costs. An extension of incentives and reduction of duty on EV components is likely to make EVs affordable for consumers, says Nayak.

Nayak also anticipates the allocation of budget funds for strategically locating charging stations on highways, in cities and in residential complexes to be another key area in focus of the forthcoming.

Here’s what analysts say

Analysts observe that while no major announcements are likely in the budget, policy outlook related to the FAME-II scheme, and PLI (production-linked incentive) scheme will drive the growth of the automotive sector. “In the upcoming budget, stronger execution of existing policies with enhanced focus will be helpful in areas like PLI, FAME3 (outlay and scope), import duty, relaxation in battery localization tenure, scrappage policy and associated infrastructure,” says Rajat Mahajan, partner, Deloitte India.

 Meanwhile, Anurag Singh, MD, Primus Partners opines that easing the mechanism for EV financing would bolster EV sales in the country. "In the absence of risk data for EV, lenders as well as insurers are challenged to give loans as well as insurance for EV vehicles. A mechanism where in Banks and Insurers can lower their risk, e.g. an EV security fund may help. This will greatly reduce the loan rates as well as insurance premiums for EVS," says Singh.