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Impact of Union Budget 2023-24 on the Indian EV Industry

Rajeev YSR, Electric Vehicle Expert and Chief Mentor at EV Masterclass, shares his perspective on the impact of the announcements and provisions made in the budget 2023-24 on the Indian EV industry.

This budget was built on a three-pillar vision of:

– Opportunities for citizens with a focus on the youth

– Growth and Job Creation

– Strong and Stable Macro-Economic Environment

In a way, the main focus of the budget is the entrepreneurial youth who would be mass job creators and play a very strong role in the growth story of the country’s economic development. This is further topped with the “Saptarish – 7 Priorities”.

– Inclusive Development

– Youth Power

– Infrastructure & Investment

– Green Growth

– Unleashing the Potential

– Reaching the last mile

– Financial Sector

The priorities can further be broadly categorized into two; one is the focus on sustainable development, which encompasses green growth, infrastructure & investment. The second is the focus on unleashing the entrepreneurial potential of youth power, specifically in financial and other sectors such as agriculture, health and finance that propel inclusive development.

Though it is tempting to reflect on the entire budget, I restrict myself to the Electric Vehicle Industry and contemplate the impact of the budget on this sector with exact facts and an appropriate interpretation of the data.

Let’s first consider the points in the budget that would directly impact the EV ecosystem and then transcend to the areas where the EV ecosystem might indirectly benefit from the measures.

Direct Impactors

1. Simplification in Indirect taxes and changes to custom duty under tax proposals

– The customs duties shall change on capital goods imported for Li-on battery manufacturing. Right now, these capital goods and machinery attract customs duty of 5% to 20%, and the same is expected to be zero up to 31st March 2024.

This means that the manufacturing of batteries locally is going to be cheaper. This particular initiative needs to be reflected in the context of the recent Production Linked Incentives of INR 18,000 Crores allotted for Advanced Chemistry Cell (ACC) Battery Storage.

As per MHI, A total of 10 bids were received from companies with a cumulative manufacturing capacity of 128 GWh as a response to the Request for Proposal (RFP) floated under the Production Linked Incentive (PLI) scheme of Advanced Chemistry Cell (ACC) Battery storage. (Source)

Though the Ministry selected players to avail incentives for a capacity of 50 GWh, MHI is confident that with non-allotted private players also focusing, battery manufacturing capacity is expected to reach the tune of 95 GWH in the next few years. (Source)

The reduction of custom duties on the capital goods imported for the manufacturing of lithium-ion batteries gains prominence because the PLI scheme expects that the manufacturing facilities to the tune of 50 GWh already allotted must be set up by the players within a period of two years.

Thus, this move gives great immediate relief and boost to not only the players who secured the PLI but also to the other players who are investing in the localization of battery manufacturing in India.

Not only the PLI secured players such as Rajesh Exports, Ola Electric and Reliance Energy, but also the waitlist players such as Mahindra & Mahindra, Exide Industries, Larsen & Toubro, Amar Raja, Indian Power corporation, along with startups such as Log 9 are immensely going to be benefitted from this move. This will attract even more players into the arena.

2. Green Growth: Under this initiative, funds are allocated to:

a) Promotion of battery energy storage systems

Such a focused approach to the promotion of battery energy storage systems is going to reduce the cost of batteries, which at this time constitute ~ 40% of the vehicle cost. Thus a parity between Electric Vehicles and their counterpart in Internal Combustion Engine (ICE) Vehicles of the same category would further be achieved. This, when clubbed with the budget estimate of 5,172 Cr for 2023-24 for Faster Adoption and Manufacturing of EVs (FAME), which is the highest allocation since its launch in 2020, will further reduce the disparity between EVs and ICE, and it would be no wonder that in categories such as 2W and 3W, which are almost close in terms of cost comparison; the EVs might beat the ICE vehicles.

This is a brilliant move considering the goal the Government is chasing, i.e. to ensure EVs constitute 30% of total vehicle sales by 2030.

b) Replace the old polluting vehicles

At a time when the Vehicle scrappage policy is gaining prominence, the allocation of funds to replace these old polluting vehicles further accelerates the execution of the policy. With additional incentives of encouraging Electric vehicles as replacement vehicles to the old polluting vehicles, the demand for electric vehicles on the road would further increase.

Indirect Influencers:

1. Allocation to the Ministry of Road Transport & Highways

Apart from the above moves, the Ministry of Road Transport & Highways as a sector received a 2.7 lakh crore allotment, which is next after the Ministry of Defence as part of this budget. This gives further leeway to the Gadkari-led Ministry to be more aggressive in the adoption of EVs.

2. Infrastructure & Investment

– Under this section, the Capital Investment outlay was increased by 33.4% to 10 lakh crores

– 50-year interest-free loan to states that spend on capital expenditure

– Special focus on creating urban infrastructure in tier 2 and 3 cities with 10,000 cr per year allocation

These allocations and investments will further boost the development of infrastructure, such as urban transport and electricity, and when overlapped with the smart city plans that mandate the setting up of charging infrastructure.

With a focus on quality electricity, urban transport and charging infrastructure in place, the penetration of EVs among the tier 2, 3 and rural markets will further accelerate.

3. Tax Exemption Limit Increase

The income limit for a rebate of income tax increased from 5 lakhs to 7 lakhs in the new regime. This ensures more money in the hands of the customer and thus an increased purchase power. This is again that customer segment group who would invest in their personal mobility, especially from the 2-wheeler to entry-level 4-wheelers.

In summary, it can be concluded that the direct impactors reduce the cost of electric vehicles and make them more accessible to the public. At the same time, the indirect influencers support the affordability and penetration of electric vehicles.

With the domino effect we see, it can be prophesied that the electric 2-wheeler and 3-wheeler penetration would increase among the vehicle users and very soon offer tough competition to the ICE vehicles.

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