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Auto Industry Seeks Revival Measures in Union Budget 2025


Last Updated: 24th January 2025 - 04:10 pm
The automotive industry has been experiencing sluggish growth in both the passenger and commercial vehicle segments this fiscal year. Consequently, it is eagerly anticipating announcements in the upcoming Union Budget that may signal increased welfare spending and higher public capital expenditure.
On February 1, Finance Minister Nirmala Sitharaman is set to present the Union Budget for 2025-26.
Experts suggest that the government's focus on capital expenditure has had a direct impact on commercial vehicle sales and related industries. In the previous Budget, the capital expenditure allocation was set at ₹11.11 trillion, a move that was well-received by the industry. However, market analysts note that the slowdown in national highway construction, coupled with the government's shift towards election-related activities during the year, negatively affected the sector.
Over the years, the government has actively promoted electric vehicle (EV) adoption through various incentives, including the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme and the Production Linked Incentive Scheme (PLIS). In the last Budget, PLIS allocation surged sevenfold to ₹3,500 crore from ₹484 crore in the revised estimates for FY24.
In September 2024, the government introduced the PM E-DRIVE Scheme, replacing FAME, with a total budget of ₹10,900 crore over two years. This initiative aims to subsidize electric two-wheelers, three-wheelers, hybrid ambulances, and trucks while excluding electric cars.
While the industry appreciates these initiatives for expanding EV adoption, it also urges the government to address delays in PLIS disbursements. Additionally, it seeks a more practical approach to value-addition requirements, currently set at 50% to qualify for PLIS benefits.
Call for Tax Rationalization
Another key demand from the industry is the rationalization of tax rates across EVs, components, and related infrastructure. While EVs themselves are taxed at a reasonable 5% GST, components continue to attract higher rates of 15-28%. Industry experts argue that lowering the GST on EV batteries alone could reduce vehicle costs by 40-50%.
Dinkar Agrawal, Founder, CTO & COO of Oben Electric, emphasized the need for a simpler tax structure, stating, "A uniform 5% GST across EVs, components, and charging infrastructure is crucial to bringing down costs and accelerating growth."
Additionally, industry players advocate for promoting hybrid vehicles as a transitional technology by reducing their GST rates. Currently taxed at 28%, they are calling for a reduction to 18% to make hybrid vehicles a more viable option.
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