Union Budget 2023-24: Considerations & Missed Out for Auto/EV Sector

The automotive sector is one of the largest industries contributing about 7.1% to India’s GDP and generating huge direct and indirect employment. In the Union Budget FY24, the industry has got a major boost towards electric vehicle manufacturing, hydrogen fuel adoption, and the changing technology mix. However, there were certain misses about the GST reduction. Here is everything that is considered and missed out in Union Budget 2023-24.

FM said that the Budget has adopted seven policies namely inclusive development, last mile connectivity, infrastructure & investment, unleashing potential, green growth, youth power, and financial sector.

In the Modi 2.0 government’s last full-year budget of 2023, Finance Minister Nirmala Sitharaman has announced some major reliefs for the middle class, farmers, and railways.

FM said that the Union Budget FY 2023-24 has adopted seven policies namely inclusive development, last mile connectivity, infrastructure & investment, unleashing potential, green growth, youth power, and financial sector.

With the automotive sector being one of the largest industries contributing about 7.1% to India’s GDP and generating huge direct and indirect employment, she touched upon the key areas for the mobility sector as follows.


Considerations: –


 1. Push for Net Zero Carbon: INR 35,000 crore outlay has been announced for energy transition with a focus on achieving the country’s goal of net zero carbon emissions by 2070.

 2. Push towards the Hydrogen economy: To facilitate the transition to a low carbon intensity economy, an outlay of INR 19,700 crores for the National Green Hydrogen Mission is announced. The government is targeting to reach annual production of 5 metric million tonnes by 2030.

 3. Push towards Electric Vehicles: CD(Custom Duty) reduction from 21% to 13% on lithium-ion cells and an extension of the subsidies on electric vehicle (EV) batteries for one more year are major demand boosters. Viability gap funding support for battery storage systems with a capacity of 4,000 MWh is also announced. With green mobility identified as one of the priority areas, manufacturing, and adoption of alternative fuel vehicles, including EVs, has also received an impetus. As part of the earlier announced INR 10,000 crore outlay, the allocation for the FAME-2 scheme has now been doubled for FY24.

  4. Planning & Execution of Scrappage Policy: FM Nirmala Sitharaman said adequate funds are allocated to scrap old vehicles of the central government, states will also be supported in replacing old vehicles, including ambulances

 5. Push towards Transport infrastructure projects: The minister said that 100 critical transport infrastructure projects for last and first-mile connectivity for ports, coal, steel, fertilizer, and food grain sectors are identified with an investment of INR 75000 crores, including INR 15,000 crore from the private sector.

 6. Support for MSMEs: The FM announced INR 9,000-crore corpus for a revamped credit guarantee scheme for micro, small, and medium enterprises (MSMEs), which would be effective April 1, 2023. The new credit guarantee scheme is expected to lower the cost of credit by 1%. View of Shamsher Dewan, Senior Vice President & Group Head – Corporate Ratings, ICRA Limited, “The significantly higher allocation of INR 10 lakh crore towards capital investments and INR 79,000 crore towards affordable housing in the Union Budget FY24 augurs well for commercial vehicle demand, especially the heavier multi-axle vehicles, and tippers.”

 “The LCV segment would also benefit from the outlay of INR 75,000 crore towards improving first and last-mile connectivity for select sectors.“
However, the auto sector anticipated relief in the form of uniform GST on components, concession on R&D expenses, and higher taxation on hybrid vehicles which was not talked about during the Budget speech.


 Missed Out


 1. CD Hike (Custom duty): The Government has proposed to increase the duties on completely built units (CBUs) to 70% from 60% earlier and a broad increase of duty to 35% from 33% on semi-knocked down (SKD). This may remain a hindrance in leveraging the potential of the luxury car market in the country.   As per the Managing Director & CEO, of Mercedes-Benz India, “The change in basic custom duties is going to impact the pricing of some of Mercedes Benz select cars like the S-Class Maybach and select CBUs like GLB and EQB, making them dearer. However, as we locally manufacture most of Mercedes Benz models, this will not affect 95% of Mercedes Benz portfolio.”

  2. No Uniform GST for auto parts: The industry has been demanding a uniform GST of 18% on all automotive components and it is not addressed in the union budget 2023. This was also important to avoid confusion and ambiguities.

  3. No Incentive scheme for R&D: The auto sector was anticipating tax benefits in the form of Research & Development incentives, as emerging and new technologies need substantial R&D support.

 4. Duty hike on compounded rubber: An increase in the duty rates on compounded rubber from 10% to INR 25 (or) INR 30 per kg, whichever is less, is a challenge for the tire industry which largely depends on imported rubber.

  5. Less GST on Hybrid Vehicles: India aims at reducing carbon emissions and promoting green mobility. Hybrid vehicles offer optimal utilization of the fuel by offering higher mileage. They are still taxed as luxury goods at 43%.

 6. Scrappage policy with a Boating: FM announced that only the polluting government vehicles will be replaced whose numbers are limited. Central government vehicle scrapping will be funded directly, and State Government vehicle scrapping will be supported financially.

The article is written by JEVPL

Satyendra Pal: Founder & Managing Director of Jeetsons Electric Vehicles Private Limited (JEVPL)

Harish Sharma: Co-Founder & Director Jeetsons Electric Vehicles Private Limited (JEVPL)

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