We explain the hits and misses of union budget 2022, for the automotive sector
FM Nirmala Sitharaman’s annual budget for 2022 is out, and the automotive sector has on the strictest note, had minimal takeaways from it. Further acceleration of EV adoption remains the focus of this budget as well. The FM has announced a number of policies and measures to speed up the switch to electric vehicles. The government has also let open the R&D of defence equipment and vehicles to private players, hoping to make auto component manufacturers benefit more. Also, optimum funds and discounts have been allotted to aid the farm equipment and rural-automotive sectors as well. Considering the high degrees of construction and commercial projects in the pipeline, the CV industry is also expected to grow in the days ahead. Let’s dive deeper…
India To Push EVs Stronger: More Infrastructure And Battery Swapping
Under the new budget, India will push EV adoption stronger. The new policies will greatly favour setting up of a broader EV ecosystem. Expansion of the charging station network is expected to gain speed with the new bill. More important, however, is the proposed battery swapping policy. This will favour the private players to set up viable business models to offer battery and energy as services, contributing thereby, to the overall practicality of electric vehicles and in turn to their overall acceptance. The policy will also have a strong focus on formalising the interoperability standards for EV batteries.
Battery swapping would make EV ownership hassle-free. These would eliminate the time and effort barriers of charging embedded/ integrated battery units of the present-day EVs. Currently, there are very few names in the swapping scene. A number of EV startups and a few big names are already working on developing swapping networks and testing them to perfection. Remember us talking of Hero-Gogoro partnership and HOP Energy Network? Recently, Reliance and Britain’s BP Plc had also formed an alliance to develop battery-swapping technology here. All these would be benefitted from the new government policies.
Greater EV Adoption In Public Transport
The new budget also envisions boosting the EV penetration in the commercial vehicles space, particularly in the public transport sector. More electric vehicles will be used in the nation’s public transport fleet. More electric buses and other clean energy commercial vehicles are expected to be put to use by the government soon.
At present, many states have electric buses in service, in the public transport space. The new policies are expected to boost this further. This would, in turn, encourage more EV manufacturers to come up with new e-buses and all-electric commercial vehicles. The advantage of these policies is hoped to be limited to certain players and not the industry as a whole.
Cars, Bikes And Scooters WILL NOT Get Cheaper
As mentioned earlier, this year’s budget has left a handful of needs unaddressed. While the policies favour electric vehicle adoption in general, no major incentives for the same have been announced. Also, no tax revision or duty restructuring have been declared, meaning the prevailing input and manufacturing costs would continue, if not see further hikes ahead. The prices of cars, bikes and scooters would mostly not come down then, and might even shoot higher, as has been the case recently.
Defence R&D To Private Players
Budget 2022 opens up defence R&D to private players. More automakers would now be able to design and develop vehicles for the defence sector. Auto component manufacturers would also benefit greatly from this policy. Indian auto majors like Tata Motors, Mahindra and Ashok Leyland are already active in the defence and strategic vehicles game. The new policies will generate more revenue and growth streams for these players.
Major Support To The Farming Sector
The new budget has a strong focus on boosting rural vehicle demand and adoption. It has allotted Rs 2.73 lakh crore MSP and other benefits to help the farming sector. The demands for two-wheelers, cars, SUVs, commercial vehicles and farm equipment are expected to shoot up. These would improve the rural economy and could soon fix the damage caused by the second wave of COVID 19.
More Infrastructure And More Growth In The CV Space
Budget 2022 also allocates big sums towards infrastructure development in the country. Rs 20,000 crores have been put towards infra projects. An extensive expansion of national highways will be brought about in 2022-23. 25,000 kilometres of highway will be constructed in the coming year. Widening the existing highways is also in plans.
As obvious, developing the road infrastructure would demand more commercial and purpose vehicles. The CV sales are expected to grow along, due to the increased demands for the same.'
What Are The Major Misses?
- The biggest miss would be the GST revision that the entire automotive sector has been craving for. The taxation on automobiles is the highest in India. Currently auto and related products fall under the 28% GST slab, with additional cess of up to 22% depending on the vehicle and engine sizes. GST rates make vehicles out of reach for the common man, hindering the growth of this sector.
Federation of Automobile Dealers (FADA) had requested the government to lower the GST slab on two wheelers to 18%. Such a move from the government would make them cheaper and boost demands further. Similar GST revisions could also be brought on multiple automotive components currently placed in the 18-28% range. As it turns out, the pleas for rationalization of GST have been left unattended in the budget.
- Making things worse for those on the hunt for vehicles, the government also has plans of imposing an additional differential excise duty of Rs 2 per liter on unblended petrol and diesel. This would make fuel prices shoot higher in the time ahead. These if you might remember, had been on a rise throughout 2021. Fuel price hike would affect all, but it would be the 110-125 cc two wheeler buyers who would be the worst-hit!
- No doubt, electric vehicles have benefitted greatly from the union budget this year. But, there are a few demands/ requests of EV manufacturers that have not been attended to properly. FAME ll revisions have contributed greatly to India’s EV adoption. However, multiple EV manufacturers had hopes of the government extending this further and recalibrating the price caps to better-suit the current economic status. Another demand was to extend the benefits of the scheme to low speed EVs as well. Currently EVs with atleast 40kph as top speeds are eligible for availing FAME 2 benefits. None of these needs were addressed in the budget.
ALSO READ: FAME 2 Revision And Its Impacts Explained
- Another major expectation was the government rolling out subsidies for converting ICE vehicles to electric vehicles, or in other words, electrifying ICE powertrains completely. Even as the question of such conversions being safe or not remains, no such subsidies were announced!
- Semiconductor shortage is eating the entire automotive industry and is feasting on EVs! These are mostly imported, and not locally manufactured. Production Linked Incentives (PLI) and associated policies were expected to roll out with the budget, to facilitate local manufacturing of semiconductors and ensure hassle-free supply. Also expected were cuts in existing import duties. None of these were addressed.
- The budget does not specify any particular initiative to encourage the switch to biofuel or conversion to flex-fuels compatibility. An import-duty cut to 2.5% on Ethanol was expected, in accordance with India’s vision of becoming the third-largest market for the same in the coming years, but in vain.
- The final grave miss of budget 2022 would be the lack of relief on the personal income tax. Salaried middle class would continue to be disappointed with the prevailing tax structure, which would in many a case, hold them back from buying the right cars or bikes, amidst the pandemic.
How The Industry Reacts
The automotive sector as a whole has welcomed the budget warmly. Most manufacturers have announced their appreciation of the same. Auto majors in the luxury space like Mercedes Benz, BMW etc are delighted by the government push for EV adoption and are confident of their sustainability vision for India. Indian giants like Tata Motors and Mahindra already have a strong focus on electric mobility. Tata currently leads the electric mobility race in the country, while Mahindra has electric offerings in the commercial vehicle space alone. Both the manufacturers have welcomed the policies warmly. Budget 2022 has also put smiles on two-wheeler majors and EV startups alike.
We feel this budget to be in absolute favour of manufacturers and/or corporates. The common man will enjoy no big boon, and would have rare chances of not being disappointed with it. Differential excise duty will make fuel prices hike again. ICE vehicle ownership would become even more expensive in the time ahead. A complete switch to EVs is, as a matter of fact, not the most practical option in the present times. These considered, the interim period could get tough! Also, going by the inflation rates, GST slabs and other manufacturer costs, expect price hikes on cars, bikes and scooters soon.