Auto Sector Eyes EV Incentives, GST Clarity in Upcoming Budget

India's automobile industry reported robust volumes across passenger vehicles, two-wheelers, and commercial vehicles in the recent October-December quarter, boosted by GST 2.0 rate rationalisation. Sources spoke to Moneycontrol say the sector now looks to the Union Budget on February 1 for protection of EV tax advantages, localisation push, and policy continuity.

The automobile industry's strong recovery has occurred primarily as a result of lower customer pricing, the resurgence of demand in rural areas and the seasonal upswing that occurs during certain festivals. Rising raw material costs threaten margins for car manufacturers in the near term.

The industry anticipates continued government support for EV manufacturing and electrification.

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Key Budget Expectations

The automobile industry seeks to maintain the GST rate advantage enjoyed by EVs (5% as compared to gasoline and diesel powered vehicles); that demand, incentive and lower cost structures (PM-E-Drive) be utilised to achieve 30% EV penetration in public transport and shared mobility, commercial fleets, and last-mile delivery vehicles by 2030.

The automobile industry would like the extension of duty exemption on battery inputs and assistance for domestic rare-earth magnet production; increased emphasis on the need to localise production of EV components, and research and development into lightweight materials.

Policy stability will benefit the growth of both EV and traditional internal combustion-powered vehicles (ICE).

Recent Performance and Challenges

Affordability of GST 2.0 has increased Consumer Confidence and Affordability in the SUV Segment, which has contributed to the premiumisation of SUVs and has allowed all segments to recover while also improving terms of financed vehicles, thereby adding additional growth opportunities.

However, raw material inflation is a risk to margins. Additionally, the loss of rare earth magnets is limiting the production of EVs, while dependence on importing materials for essential components creates challenges for OEMs.

Before the next budget presentation, the options for reducing GST discrepancies between ICE and EVs must be resolved.

Last Budget Measures and Continuity

The previous budget eliminated import duties on 35 key EV battery materials and critical minerals. The auto PLI received an allocation of ₹2,819 crore to create domestic manufacturing, and the PM E-Drive charging infrastructure project received an allocation of ₹4,500 crore.

Investment limits for MSMEs have been increased by 2.5 times to allow more MSME investments. Credit guarantee options have been improved. Tax exemption slabs have increased from ₹5 lakh to ₹12 lakh to increase demand for EVs, while also providing R&D support for more advanced components and improving safety.

These initiatives have provided additional demand momentum that the industry is maintaining as it continues to address increasing production costs to transition to producing and scaling EVs and increasing volumes of production.