The Union Budget 2024 supports the automotive sector with new infrastructure projects, tax breaks on key minerals for EVs, and incentives for local manufacturing, writes, Editorial Team, Future Mobility Media.
On July 23, Finance Minister Nirmala Sitharaman presented the Union Budget, marking the first budget of the Modi 3.0 government and the National Democratic Alliance (NDA) after their 2024 Lok Sabha election victory. The 2024 Union Budget, with the government’s focus on employment, skilling, critical minerals, and rural development, among other priorities, provides a robust framework to support the growth of the industrial sector. These initiatives will have a catalyzing effect on the automotive industry’s growth, particularly in emerging technologies like electric vehicles (EVs) and hybrid vehicles, which are redefining mobility.
Investment in Infrastructure and Innovation
The budget’s allocation for infrastructure projects, including road connectivity and rural development, is set to create a conducive environment for the automobile industry’s growth. Improved infrastructure will facilitate better supply chains and distribution networks, essential for the timely delivery of automotive components and vehicles. Additionally, the focus on innovation and R&D will drive the industry’s technological advancements, ensuring that India remains competitive on the global stage.
The proposed restructuring of the GST to favour hybrid vehicles and alternative fuels like biofuels and CNG is another significant move. By creating a more favourable tax environment for environmentally friendly vehicles, the government is encouraging the industry to invest in sustainable technologies and reduce its carbon footprint.
- Capital expenditure is set at ₹ 11,11,111 Cr., @3.4% of our GDP
- A provision of ₹1.5 lakh crore has been made for long-term, interest-free loans to assist state governments with their infrastructure investment.
Production Linked Incentive (PLI) Scheme and Its Impact
The government’s PLI scheme for the automotive sector, with a substantial budget outlay of INR 25,938 crore from FY23 to FY27, is a significant development. This scheme supports both OEMs and component manufacturers, incentivizing investments in local production and technological upgrades. The PLI scheme’s success will depend on effective implementation and its ability to attract and sustain long-term investments in the automotive sector.
Expanding EV Market Share
A notable announcement in the budget is the exemption of import duties on 25 critical minerals, including lithium, cobalt, and rare earth elements, which are essential for manufacturing batteries used in EVs. This move is expected to significantly reduce the production costs of EVs, making them more affordable and accessible to consumers. By lowering the cost of critical minerals, the government is directly supporting the Make in India initiative and encouraging domestic manufacturing of EV batteries. This exemption aligns with the government’s ambitious target to have 30% of total vehicle sales be electric by 2030.
It also supports the proposed FAME III (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) policy, which aims to increase subsidies for EV buyers, encourage companies to set up battery manufacturing plants in India, and invest in R&D in battery technology. These measures are expected to drive significant growth in the EV sector, reduce dependency on fossil fuels, and promote sustainable transportation solutions.
Road Connectivity Projects
New road connections in various regions will facilitate smoother transportation of goods, including automotive components and finished vehicles. Enhanced road infrastructure is essential for supporting the industry’s growth, ensuring timely delivery of products, and reducing transportation costs.
- Road connectivity projects with a total investment of ₹26,000 crore include:
- Patna-Purnea Expressway
- Buxar-Bhagalpur Expressway
- Bodhgaya, Rajgir, Vaishali, Darbhanga spurs
- Additional 2-lane bridge over river Ganga at Buxar
- As of July 23, 2024, a total of 8,10,083 km of road has been approved, with 7,65,530 km already finished. The expenditure on this project has reached ₹3,24,177 crore.
Smart Fuels
The budget also addresses the need for sustainable and efficient fuel alternatives. Investments in biofuels, CNG, and hydrogen fuel cells are expected to reduce the automotive sector’s carbon footprint. Smart fuels, combined with advancements in engine technology, will improve fuel efficiency and reduce emissions, aligning with India’s commitment to environmental sustainability.
Minerals and Raw Materials
The exemption of import duties on critical minerals is a strategic move to support the domestic manufacturing of EV batteries and other advanced automotive components. Minerals like lithium, cobalt, and rare earth elements are essential for battery production, and their cost significantly impacts the overall price of EVs.
Challenges and Opportunities in the EV Sector
Despite positive budgetary measures, challenges remain for the EV sector:
- High Costs and Range Anxiety: The budget addresses the need to reduce EV costs through tariff adjustments and customs exemptions. However, high upfront costs and range anxiety continue to be barriers to widespread EV adoption.
- Resale Value and Model Options: Expanding model options and addressing resale value concerns are crucial for increasing EV penetration. The budget’s focus on reducing production costs and supporting battery manufacturing is a step in the right direction.
Research and Development (R&D)
R&D investments will drive innovation in areas such as battery technology, autonomous driving systems, and smart transportation solutions. The establishment of dedicated research centres and collaboration with academic institutions will foster a culture of innovation, positioning India as a global leader in automotive technology.
Credit Guarantee Scheme for MSMEs
The automobile industry, particularly its small and medium enterprises (SMEs), will benefit from the new Credit Guarantee Scheme for MSMEs. This scheme facilitates term loans for MSMEs in the manufacturing sector to purchase machinery and equipment without collateral and guarantee, with the guarantee fund providing up to Rs 100 crore.
New Tariff Entries and Modifications
The budget includes modifications to tariff entries relevant to the automotive sector:
- New Entries for Special Purpose Vehicles: Introduction of a tariff rate for lorries fitted with bridging systems (CTH 8705) and e-bicycles or battery-operated pedal-assisted vehicles (CTH 8711 60 80) reflects a targeted approach to regulating specific automotive segments.
- Changes in Tax Deduction and Collection Certificates: Expanding the scope of obtaining lower deduction/collection certificates will help automotive businesses manage their working capital more effectively.
Employment and Skilling Initiatives
The government has announced several schemes aimed at boosting job creation and enhancing the workforce’s capabilities. This includes a new scheme that incentivizes job creation in the manufacturing sector by reimbursing employers for Employee Provident Fund Organisation (EPFO) contributions for each additional employee, targeting 30 lakh youth. This initiative supports the automobile industry’s need for a skilled workforce, particularly as the sector transitions towards more advanced technologies like the IoT, Connected Vehicles, Software-Defined Vehicles (SDVs), and autonomous vehicles.
The establishment of Hub-and-Spoke models for skilling centres is another significant step. These centres will address the high demand for specialized skills, ensuring that the workforce is well-prepared for the technological advancements in the automobile industry. The focus on women’s workforce participation, with specific skilling programs, will further diversify and strengthen the talent pool available to the industry.
Rural Development and Infrastructure
The allocation of Rs 2.66 lakh crore for rural development and rural infrastructure has significant implications for the automobile industry. Improved rural infrastructure will enhance connectivity and economic development in rural areas, creating new markets for automobile manufacturers. As rural consumers gain better access to infrastructure and transportation, the demand for vehicles, including two-wheelers and affordable cars, is expected to rise.
Budget Expectations vs. Budget Outcomes
The Union Budget 2024 was met with high expectations from various stakeholders and industry leaders, who anticipated significant policy interventions to bolster the sector, especially in light of the challenges posed by the global economic slowdown and the ongoing transition towards electric mobility. The announcement of reduced import duties on critical minerals and substantial investments in infrastructure and skilling initiatives aligns well with these expectations.
However, there were areas where the budget fell short. For instance, while the focus on EVs is commendable, industry experts had hoped for more comprehensive measures addressing the entire value chain, including incentives for R&D in advanced automotive technologies and clearer policies on charging infrastructure development. Additionally, while the credit guarantee scheme for MSMEs is a positive step, its implementation and accessibility will be crucial in determining its actual impact. Overall, the Union Budget 2024 has laid a promising foundation, but its success will depend on the effective execution of the announced measures and the government’s ability to address emerging challenges dynamically.
Comparative Analysis: Budget 2023 vs. Budget 2024
Conclusion
A significant influence is played by the automobile sector. comprising 49% of the manufacturing GDP of the country in India. The nation produced an incredible number of vehicles in the fiscal year 2024: 1.07 million commercial vehicles, 990,000 three-wheelers, 21.47 million two-wheelers, and almost 4.9 million passenger automobiles. The budget for this year intends to accelerate India from its current position as the world’s third-largest automobile market to the top. By expanding the Phased Manufacturing Programme, which is crucial for fostering local manufacturing and boosting India’s standing in the international market, it firmly supports the ‘Aatmanirbhar Bharat’ goal. The sector is keen for additional information on how the financial resources will be dispersed, even if the budget’s support for the FAME and EMPS initiatives is positive. There is a great need to know if the money will be utilised to solve current financial issues or to expand the reach of these initiatives.