Budget 2024: A Look at expectations of EV players
4 min read • Updated: January 25, 2024, 7:45 PM
An announcement of a 5% tax rate across all battery and spare parts categories would help faster growth of the EV industry by lowering the cost of the vehicles. Currently, some batteries and components fall under a higher GST rate of 18%.
The electric vehicle (EV) industry in India is looking forward to the Budget 2024 with high expectations. The EV industry is hopeful of more incentives like GST relief and Faster Adoption and Manufacturing Electric (FAME) subsidy scheme for a rapidly growing sector in the upcoming Interim Budget.
The EV industry has seen significant growth in the last few years. The India Electric Vehicle Market, estimated at $34.80 billion in 2024, is poised to reach $110.74 billion by 2029. The industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 26.05%, according to a report by market research agency Mordor Intelligence.
India's EV sales surge to 1.5 million in 2023, marking a 50% increase in volume compared to 1.02 million in 2022, according to a CareEdge report. The overall share of EVs in the auto sales in India increased multifold to 6.38% in 2023 from 1.75% in 2021.
As Finance Minister Nirmala Sitharaman will present the Interim Budget on February 1, the EV industry players expect a positive announcement from the government. The industry watchers will keep an eye on the government’s announcements specifically on GST and the implementation of FAME III scheme.
EV industry seeks clarity on FAME III and GST relief
Spotlight is also on the potential announcement of the third phase of the FAME scheme, known as FAME III. The FAME scheme, initiated in 2014, has been a key impetus for EV market growth. FAME II, launched in 2019 with a budget outlay of ₹10,000 crore for three years, targets support for various electric vehicles. These include buses, 3-wheelers and 2-wheelers.
Continued subsidies and tax exemptions can help with the sector's growth. The FAME scheme has played a vital role in boosting EV adoption in the country. Stakeholders are looking forward to an extension of the FAME II scheme in the Interim Budget.
Ahead of the Budget, many EV company leaders expressed the need for a comprehensive policy on EV components for transparency. The industry insiders also expect extending the benefits like production-linked incentive (PLI) scheme, which has high minimum net worth requirements, to the EV companies.
The EV companies have been asking for reductions in the Goods and Services Tax (GST) on certain EV components. The current 5% GST on electric vehicles was a step in the right direction. However, challenges remain especially the 28% or 18% GST on spare parts.
A key area of concern for the EV industry is the disparity between the GST rates for batteries. While fixed batteries are taxed at 5%, lithium-ion batteries fall in a much higher slab of 18%. The industry expects the government to address the issue and possibly announce a 5% tax rate across all battery and spare parts categories. The tax cut could lead to a reduced cost of EVs, further boosting their adoption in the new market spaces. The lower tax rates will also make battery swapping and subscription models more accessible and affordable for customers.
A possible announcement broadening the horizon of the production-linked incentive (PLI) scheme is also expected for the EV industry in Budget 2024.
Presently, the government offers a PLI scheme for advanced chemistry cell (ACC) battery production at an estimated outlay of ₹18,100 crore. The ACCs are the new-gen storage technology that stores electric energy either as electrochemical or as chemical energy and converts it to electric energy when required.
The PLI scheme for ACC battery production was introduced in 2021 to attract investment worth ₹45,000.
Under the PLI scheme for the automobile and auto component industry with a budgetary outlay of ₹25,938 crore, the government offers financial incentives to boost domestic manufacturing of advanced automotive technology products including electric vehicles and their components.
The government is likely to continue to offer subsidies and other incentives for electric vehicles in the Budget 2024. The Ministry of Road Transport and Highways, in 2023 advised states to waive off tax on EVs, to reduce the initial cost. Battery-operated vehicles were also exempted from permit requirements for carrying passengers or goods.
Policy adjustments with support for private buses could also find a place in Budget 2024, with a focus on boosting the adoption of electric buses.
As Budget 2024 approaches, expectations outlined by key stakeholders reflect a collective vision for a sustainable, innovative and competitive EV industry in India.