Impact of Union Budget 2024 on the Auto and EV Industry

– By Saket Mehra (Partner and Auto & EV Industry Leader, Grant Thornton Bharat )

Skill Development and Capacity Expansion: The Union Budget introduced key measures to bolster the R&D, job creation and infrastructure development for the industry, such as:

Anusandhan National Research Fund expected to strengthen R&D: The operationalisation of the Anusandhan National Research Fund will support basic research, prototype development, and private sector-driven innovation with a ₹1 lakh crore financing pool- providing fillip to commercial-scale innovations in industry. Strengthening domestic R&D capabilities is crucial for achieving energy independence by 2047 and net-zero commitments by 2070.

The eMobility R&D Roadmap of India, prepared by ARAI, outlines key projects in Energy Storage Cells, EV Aggregators, Materials and Recycling, and Charging & Refueling, with an estimated cost of INR 1151 Cr. over the next five years, filling gaps in the current R&D framework and fostering future innovations.

Job Creation in Manufacturing: The Employment Linked Incentive (ELI) scheme aims to create jobs in the manufacturing sector by providing incentives directly to both employees and employers concerning their Employees’ Provident Fund Organization (EPFO) contributions for the first four years of employment. This initiative is expected to benefit 30 lakh youth, fostering a skilled workforce essential for the automotive industry by extension.

Development of Industrial Parks: The government will facilitate the development of investment-ready industrial parks with complete infrastructure in or near 100 cities. These parks will encourage the establishment and expansion of Auto & EV clusters, supporting large-scale production and innovation.

Fueling investments in the industry: The overall PE investments in the Auto & EV industry in the first half of 2024 reached USD 628 million, highlighting the sector’s strong investment appeal- largely contributed by EV and smart mobility sub-sectors. The abolishing of the angel tax is expected to encourage more investors to support emerging EV technologies, fostering a robust ecosystem for sustainable transportation solutions. This policy shift will accelerate the development of green mobility solutions and boost the EV startup ecosystem. With over 60 Indian EV startups focusing on sustainable mobility, energy infrastructure, commercial mobility, and battery management systems, this development will further enhance growth. This announcement will also positively impact the FMCG and logistics sectors, which are closely supported by the EV industry.

Strengthening EV Supply Chain: The establishment of a Critical Mineral Mission will focus on domestic production, recycling, and securing critical minerals essential for EV battery production. This mission will include technology development, skilled workforce training, and a suitable financing mechanism to ensure a steady supply of critical minerals. Additionally, customs duties on 25 critical minerals, including lithium, cobalt, and nickel, have been fully exempted. This exemption will create cost-effective and reliable supply chains for EV battery production, enhancing the competitiveness of the Indian EV industry.

Incentives for MSMEs in Auto & EV industry: MSMEs play a crucial role in India’s automotive industry, producing a wide range of components such as engine parts, brakes, suspension components, and transmission parts. The Union Budget 2024 introduces significant incentives for MSMEs, including a comprehensive package covering financing, regulatory changes, and technology support. This package aims to boost production and competitiveness, particularly benefiting the auto-component and allied industries. Additionally, the introduction of a credit guarantee scheme and a new credit assessment model will significantly enhance MSMEs’ access to credit. By facilitating term loans for purchasing machinery without collateral and assessing credit eligibility based on digital footprints, MSMEs can expand their production capacity, fueling further growth and innovation in the industry.

Although there were lager expectations around FAME-III and tax incentives to strong hybrid vehicles, but overall the Union Budget 2024 presents a comprehensive strategy to bolster the Auto and EV industry in India. Through a combination of incentives for R&D and manufacturing, support for MSMEs, skill development programs, measures to ensure the availability of critical minerals, and a strong focus on renewable energy, the budget aims to create a conducive environment for the industry’s growth. These initiatives are poised to enhance the competitiveness of the Indian Auto and EV industry on a global scale, driving sustainable and inclusive growth.

-By Saket Mehra (Partner and Auto & EV Industry Leader)

The Union Budget 2024 has introduced several measures that are set to have a significant impact on the automotive and electric vehicle (EV) industry in India. Aligned with the government’s strategic priorities, the budget focuses on enhancing manufacturing capabilities, supporting innovation, ensuring sustainable growth, and creating ample opportunities across sectors. Here’s a detailed analysis of the key announcements and their implications for the auto and EV industry:

1.Skill Development and Capacity Expansion: The Union Budget introduced key measures to bolster the R&D, job creation and infrastructure development for the industry, such as:

  • Anusandhan National Research Fund expected to strengthen R&D: The operationalisation of the Anusandhan National Research Fund will support basic research, prototype development, and private sector-driven innovation with a ₹1 lakh crore financing pool- providing fillip to commercial-scale innovations in industry. Strengthening domestic R&D capabilities is crucial for achieving energy independence by 2047 and net-zero commitments by 2070.
  • The eMobility R&D Roadmap of India, prepared by ARAI, outlines key projects in Energy Storage Cells, EV Aggregators, Materials and Recycling, and Charging & Refueling, with an estimated cost of INR 1151 Cr. over the next five years, filling gaps in the current R&D framework and fostering future innovations.
  • Job Creation in Manufacturing: The Employment Linked Incentive (ELI) scheme aims to create jobs in the manufacturing sector by providing incentives directly to both employees and employers concerning their Employees’ Provident Fund Organization (EPFO) contributions for the first four years of employment. This initiative is expected to benefit 30 lakh youth, fostering a skilled workforce essential for the automotive industry by extension.
  • Development of Industrial Parks: The government will facilitate the development of investment-ready industrial parks with complete infrastructure in or near 100 cities. These parks will encourage the establishment and expansion of Auto & EV clusters, supporting large-scale production and innovation.

2.Fueling investments in the industry: The overall PE investments in the Auto & EV industry in the first half of 2024 reached USD 628 million, highlighting the sector’s strong investment appeal- largely contributed by EV and smart mobility sub-sectors. The abolishing of the angel tax is expected to encourage more investors to support emerging EV technologies, fostering a robust ecosystem for sustainable transportation solutions. This policy shift will accelerate the development of green mobility solutions and boost the EV startup ecosystem. With over 60 Indian EV startups focusing on sustainable mobility, energy infrastructure, commercial mobility, and battery management systems, this development will further enhance growth. This announcement will also positively impact the FMCG and logistics sectors, which are closely supported by the EV industry.

3.Strengthening EV Supply Chain: The establishment of a Critical Mineral Mission will focus on domestic production, recycling, and securing critical minerals essential for EV battery production. This mission will include technology development, skilled workforce training, and a suitable financing mechanism to ensure a steady supply of critical minerals. Additionally, customs duties on 25 critical minerals, including lithium, cobalt, and nickel, have been fully exempted. This exemption will create cost-effective and reliable supply chains for EV battery production, enhancing the competitiveness of the Indian EV industry.

4.Incentives for MSMEs in Auto & EV industry: MSMEs play a crucial role in India’s automotive industry, producing a wide range of components such as engine parts, brakes, suspension components, and transmission parts. The Union Budget 2024 introduces significant incentives for MSMEs, including a comprehensive package covering financing, regulatory changes, and technology support. This package aims to boost production and competitiveness, particularly benefiting the auto-component and allied industries. Additionally, the introduction of a credit guarantee scheme and a new credit assessment model will significantly enhance MSMEs’ access to credit. By facilitating term loans for purchasing machinery without collateral and assessing credit eligibility based on digital footprints, MSMEs can expand their production capacity, fueling further growth and innovation in the industry.

Although there were lager expectations around FAME-III and tax incentives to strong hybrid vehicles, but overall the Union Budget 2024 presents a comprehensive strategy to bolster the Auto and EV industry in India. Through a combination of incentives for R&D and manufacturing, support for MSMEs, skill development programs, measures to ensure the availability of critical minerals, and a strong focus on renewable energy, the budget aims to create a conducive environment for the industry’s growth. These initiatives are poised to enhance the competitiveness of the Indian Auto and EV industry on a global scale, driving sustainable and inclusive growth.