Union Budget 2023: Key takeaways for Indian Auto Industry

Union Finance Minister Nirmala Sitharaman revealed a number of initiatives for the auto industry in her Budget 2023 speech, which she announced today, on Wednesday, February 1, 2023, in Parliament. The minister unveiled a host of initiatives, such as indirect tax ideas, the elimination of customs taxes on capital items imported for the manufacture of EV batteries, a focus on hydrogen fuel, etc.

FM Nirmala Sitharaman began her speech by saying, “The world has recognised the Indian economy as the bright star. Our economic growth is expected to be at 7%, highest among major economies.”

The measures made by Finance Minister Nirmala Sitharaman in her Union Budget speech aim to aid India’s progress toward the previously declared objective of reaching carbon neutrality by 2070. The most prominent of these is a 35,000 crore INR fund established to encourage green and “net zero” projects.

An allocation of INR 19,700 crore for the manufacture of green hydrogen is another significant development. By 2030, India’s government wants the country to have a 5 million metric tonne production capability.

The Union Budget will also be advantageous for the electric vehicle industry. The FM offered support for 4,000 MWh of battery storage solution viability gap funding. Additionally, the Union Budget increased the customs duty exemption for imports of capital goods and equipment needed for the production of lithium-ion batteries used in electric vehicles in order to “provide impetus to green mobility”. 

Commenting on the same, Saurabh Agarwal, Tax Partner, EY, said, “The exemption from customs duty on machinery required for setting up lithium-ion cell plants would help in increasing the return on investment for the project and would likely aid in making domestic manufacturing more competitive.”

He further added, “The focus of the Union Budget 2023 is to promote the manufacture of EV in India and accordingly Customs duty on import of capital goods for manufacture of lithium-ion cell for EV battery and import of specified components/sub-systems by the testing agency is reduced. Further to push the Make in India agenda, customs duty on SKD and CBU vehicles have been increased.”

However, the FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) initiative was not extended in any way. The policy, which was initially slated to expire in 2022, had a 2-year extension in 2021 and will now expire in March of the following year.

The government’s initiatives to lessen reliance on fossil fuels are also reflected in the announcements about cleaner energy options. In a previous statement, Union Minister Nitin Gadkari said that the Central Government would no longer introduce any policies to encourage gasoline and diesel.

If the FM’s pronouncements go as planned, it will help the auto sector make the switch to cleaner mobility. As a result, the energy mix of the industry is expected to shift quickly as choices like CNG, ethanol, and hydrogen increase their market shares in various automotive categories. And an important part of the new energy mix will be played by electric vehicles, the domestic sales of which surpassed 1 Million mark in 2022.

Quick Rundown of All Major Auto Industry-Related Points From 2023 Union Budget:

• Economic Survey projects baseline GDP growth of 6.5%.
• FM allocates “adequate” funds to replace old and polluting vehicles under the scrappage policy.
• Net Zero Emission Goal by 2070.
• Custom Duty Concession on Li-ion battery to be extended.
• FM announced Rs 35,000 CR fund to support green projects and other projects with net zero emission objectives.
• Hydrogen and Battery projects also find support in Union Budget 2023.

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