An expansion-oriented approach should be taken by the Interim Budget 2024, with a focus on strengthening localization capabilities and encouraging the use of alternative fuels. This is in line with the overarching goal of using 50% renewable energy by 2030. In addition, the budget should prioritize investing in renewable energy, developing alternative fuel technology, and improving the electric vehicle (EV) ecosystem to support a healthy automotive industry.
New Delhi: Since 2024 is an election year for the Lok Sabha, the Union Budget that is announced on February 1st will only be temporary. The budget expects the automobile sector to take a growth-oriented approach, giving priority to the improvement of localization capabilities and providing incentives for the adoption of alternative fuel alternatives. This is in line with the overarching goal of using 50% renewable energy by 2030.
Building on its robust expansion in 2022, the Indian automotive sector achieved notable progress in 2023. The sales of passenger vehicles increased by 8% to over 4 million units, those of commercial vehicles by 5% to over 0.98 million units, and those of two-wheelers by 9% to over 17 million units, marking a gradual return to the peak of the previous year, 2018–19. In 2023, the sales of three-wheelers exceeded 0.68 million units, a 63% annual growth.
This historic year demonstrated the industry’s tenacity and forward motion. Electric vehicles (EVs) saw the largest year-over-year growth of any fuel type, with 1.53 million sold in 2023. This growth rate was 49%.
Notwithstanding obstacles including diminished FAME-II subsidies for the e-wheeler market, the industry managed to pick up steam by August 2023.
Driven by local demand, the auto-component sector also showed strong growth, rising 32.8% (USD 69.7 billion) in FY23.
During this time, EVs made up about 2.7% of the whole turnover.
India’s dedication to green mobility and homegrown manufacturing is in line with the EV sector’s expectations for favorable measures in the Interim Budget 2024 that would promote industry expansion. The current rate of EV penetration is 1%, and the industry is looking for assistance to grow.
With an emphasis on eco-friendly and sustainable mobility, the Green Hydrogen Mission, which has committed a considerable INR 19,700-crore capital outlay, is supporting the manufacture, use, and export of green hydrogen.
In addition to addressing the issues facing the business now, the Interim Budget 2024 ought to encourage long-term, sustainable growth. By putting policies in place to promote and ease this transition, the Budget may be a key player in helping the car industry.
The following are some areas where the budget may help the car industry during this transition:
Rewards to improve the EV Ecosystem:
The EV ecosystem aims to promote increased uptake, ingenuity, and infrastructural difficulties. The Ministry of Heavy Industries (MHI) has provided INR 5,228 crore in subsidies for around 1.15 million EVs under FAME-II, and an additional INR 800 crore for the establishment of approximately 7,500 fast charging stations nationwide.
Clarity on the FAME-III subsidy, which is anticipated to place a greater emphasis on charging infrastructure, alternative fuel projects, and mass transit, is eagerly awaited. Enhancing EV adoption will also depend on including EVs in Priority Sector Lending (PSLs) to make EV financing more accessible.
The budget should prioritize providing support for the entire EV ecosystem in addition to the incentives targeted at directly increasing EV registrations. Some examples of this support include encouraging indigenous production, establishing nationwide fast-charging infrastructure, implementing a comprehensive battery-swapping policy, and enacting insurance regulations specifically for EVs.
1. Promoting growth for MSMEs and startups:
The government should encourage policies like enabling domestic battery manufacturing, supporting skill-building programs, and offering advantages like accelerated depreciation and specialized EV financing to strengthen the EV ecosystem among MSMEs and startups. Since the commercial vehicle industry is expected to grow along with infrastructure and e-commerce, expanding government incentives in this area can spur innovation and encourage long-term growth, which will encourage MSMEs to produce and utilize electric vehicles.
2. Focus on the renewable energy sector:
By 2030, India will require investments of over USD 2.5 trillion to meet its targets for sustainable energy. Around 10% of India’s greenhouse gas emissions come from the transportation sector, so making the switch to green mobility supported by renewable energy sources is essential to lowering carbon footprint. Accelerating progress can be achieved by policy measures that prioritize research, development, production, and investments in sustainable energy solutions such as solar and wind power. The shift to sustainable energy will be strengthened by providing low-cost financing through a dedicated green fund and viability gap funding for these initiatives.
3. PLI initiative for green hydrogen:
This national effort, which might contribute to more than 20% of annual global emission reductions by 2050, is a step in the right direction. The ongoing attempts to produce electrolyzers domestically will strengthen India’s position as a net energy provider and exporter while lowering the cost of fuel imports.
4. Flexi-fuel technology:
A larger usage of this technology may be encouraged by the interim budget. From 2030 to 2025, the government plans to implement 20% ethanol mixed gasoline (E20), which will require an estimated 2.68 billion gallons, or 10.15 billion liters, of ethanol. In the supply year 2022–2023, the addition of ethanol to gasoline saved about INR 24,300 in foreign exchange. There are approximately 9,300 locations nationwide that sell fuel blended with 20% ethanol. Redirecting sugarcane for ethanol production and offering incentives for production is essential if the planned roadmap is to be followed and timely adoption is to be possible.
In conclusion, it is projected that the Interim Budget 2024 will offer critical assistance and incentives as the country transitions to green and sustainable mobility. The budget should prioritize investing in renewable energy, promoting alternative fuel technology to support a healthy automobile industry, and improving the EV ecosystem while also giving priority to domestic capabilities.