Budget for auto sector: Focus on electric vehicles and alternate fuels

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Saket Mehra
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Union Budget 2023: Production Linked Incentive (PLI) scheme for auto industry has been an overall success.

As India recently leapfrogged Japan to become the world’s third-largest automotive market in terms of sales and reached the mark of 1 million Electric vehicles being registered in 2022, the automotive industry is privy to unparalleled growth and transformation, with EV penetration across vehicle categories expected to further improve exponentially. The Government has implemented Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME-II, 2019) to encourage the adoption of EVs through subsidies (with a budget of Rs 10,000 crores).

Additionally, the Production Linked Incentive (PLI) scheme for auto industry has been an overall success, attracting proposed investment of Rs 74,850 crore and has been critical in stimulating local production across automotive value chain. To further aid green and sustainable mobility, there has been a sharp focus towards production, utilisation, and export of green hydrogen, facilitated via Green Hydrogen mission with a capital outlay of over Rs 19,700 Cr.

The Union Budget 2023 should be aimed at adopting a growth approach- focusing on enhancing manufacturing capabilities to further aid localisation, and incentivising the adoption of sustainable solutions, in alignment with the goal of creating 50% energy capacity in terms of renewables by 2030. This approach will not only support in dealing with the current headwinds faced by the industry but is also conducive to long-term growth. Few areas where the Union Budget can support the automotive industry to aid this transition are:

Incentives to enhance EV Ecosystem: There is need for an extension on the FAME-II subsidy, with an objective to link the same to e-mobility conversion, rather than it being time-based. Coupled with that, including EVs in Priority Sector Lending (PSLs) to make financing EVs cheaper and easier, will be key in enhancing EV adoption. In addition to the incentives aimed at directly improving EV registrations, the budget should also focus on extending support across the entire EV ecosystem, such as provisions for enabling fast-charging infrastructure uniformly across the country, comprehensive battery swapping policy, boosting circular economy of battery raw materials, among others.

Enabling growth for Commercial EV Players: To ensure that commercial EV adoption does not stay confined to large players, government must incentivise the MSMEs and startups to transition towards green fleet, by providing benefits such as provision for accelerated depreciation, and commercial EV financing to enable quicker adoption across categories. As the commercial vehicle industry gears up to adopt low-emission technologies, while being on an impressive growth trajectory because of development and investment in infrastructure, the government should look at granting incentives to stimulate innovation and promote ease of doing business.

Thrust on renewable power sector: India needs approximately USD 2.5 trillion in investments by 2030 to keep up with its sustainable energy goals. Hence policy announcements aimed at promoting research, development, manufacturing, and investments to enhance growth of clean energy solutions (such as wind and solar), will help further this objective. Additionally, reduction of interest rates from 8-10% to under 5%, will make borrowing cheaper (1%-point increase in the interest rate has an impact of around 15 paise on the tariff of power), and have multiplier effect across the industry value chain.

PLI Scheme for Green Hydrogen: Post highlighting the positive impact of PLI Schemes aimed at expediating manufacturing capabilities by the government, we can further expect PLI Schemes aimed at developing green hydrogen electrolysers as well as utility-scale batteries.

Incentives for wider adoption of flexi-fuel technology: As India now plans to introduce 20 percent ethanol blended petrol (E20) by 2025–2026, it will require an estimated 2.68 billion gallons or 10.15 billion liters of ethanol. To be able to adhere to the projected roadmap to enable timely adoption, incentives towards production as well as diverting sugarcane for ethanol, as well as regulatory clearances for ethanol distilleries through a single-window mechanism, are vital. This will not help the rural economy but will also allow the country to save almost Rs 30,000 cr. of foreign exchange every year.

In alignment with the Long-Term Low Emission Development Strategy (LT LEDS) to UNFCCC submitted by India at COP27, which includes plans around rapid expansion of green hydrogen production, and 20% ethanol blending in petrol by 2025, India is actively prioritising climate action and transitioning towards cleaner mobility solutions. The overall objective of the union budget 2023 should be aimed at enhancing ease of investing, encouraging research and development across green mobility, and promoting ease of doing business, to ensure sustained growth in the long-term.

This article was originally published in The Times of India.