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Budget 2023 'electrifies' automakers, shifts sector into top gear

Besides support for hydrogen and battery projects, the announcement to extend the customs duty exemption to import capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles has buoyed the sector.

Budget 2023 'electrifies' auto makers, shifts sector into top gear
First Published Feb 1, 2023, 8:31 PM IST

The Narendra Modi government's decision to provide impetus to green mobility by way of a Rs 35,000 crore fund to support those with net zero emission objectives has been welcomed by the auto sector. Besides support for hydrogen and battery projects, the announcement to extend the customs duty exemption to import capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles has buoyed the sector.

Let's see what the sector stakeholders had to say about the Budget:

Manish Raj Singhania, Federation of Automobile Dealers Associations of India President: The Modi government's last full budget has been populist in all aspects as it will help boost auto sales all around. While the capital outlay of Rs 10 lakh crore in infra spending will definitely aid CV sales, the aim to scrap all old government vehicles by aiding state governments will boost all segment sales.

Apart from this, the reduction in individual tax slabs will benefit the ailing entry-level two-wheeler and PV segment. Reduction in the highest tax surcharge from 37 per cent to 25 per cent will also benefit luxury vehicle sales. With a focus on electrification, relaxation on import duties of Lithium-ion batteries will help in the price reduction of EVs, thus making them affordable for the masses.

On the business front, being part of the MSME universe, the cost of credit guarantee will reduce by 1 per cent, thus helping auto dealers in raising funds. The budget has also focussed on ease of doing business by reducing more than 39,000 compliances and enabling entity-level Digi locker for storing and sharing documents.

Shamsher Dewan, Senior Vice President and Group Head -- Corporate Ratings, ICRA Limited: The significantly higher allocation of Rs 10 lakh crore towards capital investments and Rs. 79,000 crores towards affordable housing in the Union Budget of 2023-24 augurs well for commercial vehicle demand, especially the heavier multi-axle vehicles and tippers. The LCV segment would also benefit from the outlay of Rs 75,000 crores towards improving first and last-mile connectivity for select sectors. 

ICRA also expects that the fund allocation towards the scrapping of old government vehicles and extension of interest-free loans to state governments for the same would spur replacement demand, especially for buses. With green mobility identified as one of the priority areas, manufacturing, and adoption of alternative fuel vehicles, including electric vehicles, has also received an impetus.

Anmol Bohre, co-founder and Managing Director of Enigma: It is really great to see how environmental sustainability has been one of the top 7 priorities in this budget. The pro-EV budget focuses on much-needed initiatives such as Customs Duty reduction from 21% to 13% on capital goods and machinery required for Lithium Batteries and an extension of the subsidies on EV batteries for one more year. 

This will certainly encourage each EV manufacturer to contribute to government initiatives to achieve mass EV adoption by 2030. This will also encourage investments in the EV sector which will help new players to continue with innovation.

Somesh Kumar, Partner & Leader- Power, EY India: Electrifying mobility is one of the most important aspects of mitigating climate change and promoting green growth, a key focus area of the current budget. We have close to 2 million EVs on the road, and more than 50% of the vehicles are expected to be electrified by 2030 (varying across segments).  

One of the biggest components of EVs is the battery, and the budget provides for custom duty exemption on capital goods import required for manufacturing Lithium Ion battery cells.  This is one of the most capital-intensive areas in the entire value chain and should go a long way in improving the viability of the batteries and electric mobility sector. 

Muzammil Riyaz, Founder of EVeium Smart Mobility: In the last year alone, the EV Sector has seen many ups and downs. At present, EVs contribute to only 2 per cent of the total auto sales in India and extensive support from the government is required to chalk out sustainable growth of the sector. 

To achieve the ambitious mission of e-mobility in India, initiatives announced in the Union Budget this year, including -- Customs Duty reduction from 21% to 13% on capital goods and machinery for Lithium Batteries and an extension of the subsidies on EV batteries for one more year -- are going to help.  These will certainly encourage each EV manufacturer to contribute to the industry initiatives to achieve mass EV adoption by 2030.

Baba Kalyani, Chairman and Managing Director, Bharat Forge Ltd: Government policy formulation is a consultative process, and the successive budgets, including today's, are a strong reflection of this process, aimed at promoting a virtuous cycle of growth and employment. 

A significant and sustained push on Infrastructure spending, Railways, Green Technologies and Defence is a welcome measure. Overall direction to take India on the trajectory of a technology-driven and knowledge-based economy coupled with productive capital investments will have long-standing benefits in driving inclusive financial growth and enhancing per-capita income levels. 

Venkatram Mamillapalle, Country CEO & Managing Director, Renault India: Union Budget brings cheers to the automobile industry as it will positively give a push to sales.

The budget has laid special emphasis on the Vehicle Scrappage Policy, which will not only boost sales but will also enable achieving a clean and green environment for overall sustainable development. Additionally, funds infusion in the scrappage policy is a remarkable step and is in the right direction to achieve India’s goal of being carbon neutral by 2070. This policy would eventually help the entire eco-system of the automotive industry as this will translate into growing order books of OEMs, increased output and job creation.

Another significant announcement was made by the government on the customs duty exemption being extended to capital goods and machinery required for the manufacturing of lithium-ion batteries used in EVs. This step is a boost for companies that are / would be manufacturing electric vehicles locally, as it will help reduce the cost of EVs.

The automobile industry will witness an increase in sales with the introduction of a new tax rebate limit on personal income, which has been raised from Rs 5 lakh per annum to Rs 7 lakh per annum. This step is likely to help the sector as more disposable income with salaried customers may give a supplementary push to demand for personal vehicles.

Dheeraj Hinduja, Executive Chairman, Ashok Leyland: The Union Budget 2023-24 is aligned with the Prime Minister’s vision of building a competitive and resilient India with inclusive growth. The budget emphasises comprehensive national infrastructure development and expands on the digitization of the economy. The road transportation sector plays an important role in national development and would have even more impact going forward in supporting the government's vision. 

The announcement that old vehicles owned by the central government and state governments will be replaced as part of the vehicle scrapping policy presents a significant opportunity for fleet modernisation. This budget also echoes our sentiment and commitment to clean energy vehicles for a cleaner and greener future as part of a national mission to achieve the net zero carbon emission goal.

Santosh Iyer, Managing Director & CEO, Mercedes-Benz India: The Union Budget 2023 should drive demand as it focuses on boosting consumption by increasing the disposable income of taxpayers. Further, increased capital expenditure on infrastructure, particularly roads, should also create demand for the automotive sector. The change in basic custom duties will, however, impact the pricing of some of our select cars, like the S-Class Maybach and select CBUs like GLB and EQB, making them dearer. However, as we manufacture most of our models locally, this will not affect 95 per cent of our portfolio.

The focus on sustainability in the budget is commendable, and initiatives like extending customs duty exemption of capital goods and machinery to manufacture lithium-ion cells for EVs are a step in the right direction, as they will consistently drive green mobility in the country.

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