EV sector roots for tax cuts, subsidy extension from upcoming interim budget

With Finance Minister Nirmala Sitharaman set to present the Interim Budget 2024 on February 1, the electric vehicle (EV) sector is pushing for a slew of tax and subsidy revisions, and conducive policies, to aid the boom that the sector is witnessing.

The most prominent request from EV players is to bring in a level playing field in terms of taxation, especially the higher goods and service tax (GST) levied on EV batteries, which already make up a bulk of an electric vehicle’s comparatively higher upfront cost.

“Slashing GST on batteries from 18% to 5% will make EVs significantly affordable for consumers, accelerating the adoption rate. It will also allow manufacturers to allocate more resources towards R&D and innovate their products further,” said Akhiro Ueda, chief executive officer of EV ecosystem developer Terra Motors India.

While GST rate revisions are in the domain of the GST Council and not the Ministry of Finance, industry chiefs hope that the upcoming budget speech may provide some encouraging language.

The sector is also looking for a reduced levy on importing EV spare parts to boost cost-competitiveness within the industry. “Thе rеduction in customs duty on EV parts in thе previous budget spurred local manufacturing, and similar amendments are еxpеctеd in thе 2024 budgеt.” said Hari Kiran, co-founder and chief operations officer at electric two-wheeler rental platform eBikeGo.

The industry also anticipates an extension for the Faster Adoption & Manufacturing Electric Vehicles (FAME II) subsidy, which is supposed to expire on March 31. The subsidy incentivises domestic manufacturing of EVs and provided relief to a total of over 12.16 lakh electric vehicle with an expenditure of Rs 5,422 crore, as of December 2023. A proposed FAME III subsidy is in the works right now, and the industry is calling for an extension of the current scheme till the new version is approved.

“As per FICCI’s proposal, FAME III is projected to necessitate an expenditure exceeding Rs 30,000 crore in the next five years. This new scheme could further bolster the EV industry and continue to drive the momentum of EV adoption in India,” said Rohan Shravan, founder and CEO of medium and heavy electric trucks OEM Tresa Motors.

“Our request would be to involve EV component manufacturers as well into FAME III to make sure we can close all the loopholes for the original equipment manufacturers (OEM) to procure directly from China and just assemble here,” Shravan said.

Along with FAME, production linked incentives (PLI) schemes for the sector also stimulated domestic manufacturing efforts in the previous few years. “It would be beneficial if the upcoming budget had provisions to expand the scope of PLI schemes, which could increase the overall demand for manufacturing, ensuring an effective use of the incentives,” Terra Motors’ Ueda said.

A higher capital allocation towards sustainable energy and cleantech is also expected from the interim budget, as part of India’s bid to reduce carbon emissions by 50% by 2030.

“Crucially, as the electric vehicle revolution gains momentum, integrating renewable energy into the national grid becomes paramount. A strategic allocation in the budget for renewable energy will not only power homes but also fuel the burgeoning electric vehicle segment,” said Sameer Aggarwal, CEO and founder of EV financing firm Revfin Service.

These investments are expected to be directed towards services such as EV charging and battery swapping, as range anxiety continues to remain a big hindrance in overall EV adoption.

“Looking bеyond financial allocations, we hope thе budgеt unveils a comprеhеnsivе policy framеwork for EVs, addrеssing licеnsing, safеty standards, and insurancе norms tailorеd for еlеctric vеhiclеs,” eBikeGo’s Kiran added.

Among the expected policy changes is the release of a comprehensive Battery Swapping Policy, said SunMobility CEO Chetan Maini, as the service “is indispensable to accelerate the adoption of electric mobility and achieve the 2030 targets of EV penetration.” It should include subsidies for the service and an equitable GST structure levied on them, he added.