In another step towards a zero emissions future, India announced Green Growth as one of the seven priorities in this year’s Union Budget 2023. Particularly for e-mobility, the budget made some significant announcements that would encourage disposal of old vehicles, reduce cost of vehicle manufacturing and increase battery storage capacity. However, the transition to a zero emissions transport sector would have further benefited from announcements around uniform reduction in GST, extension of FAME II, funds for research and development.
HITS FOR THE EV SECTOR
Battery storage: The budget proposes supporting battery storage systems with a capacity of 4,000 MWH with a Viability Gap Funding (VGF) policy. Viability Gap Funding (VGF) is designed to provide capital support to Public Private Partnership projects which would not otherwise be financially viable. VGF has the effect of reducing the revenue required to recover costs and provide a financially attractive return for the private sector. This is likely to generate interest amongst project developers and help gauge the level of policy support needed to meet the 2030 projections. This announcement has received strong support from think tanks and industry alike.
"While the viability gap funding for battery storage is intended to cover about 4% of the 2030 CEA storage capacity projections, it is an important step for generating interest and gauging further support needed," said Dr. Easwaran Narassimhan, Associate Professor at Centre for Policy Research
Rishabh Jain, Senior Programme Lead, Council on Energy, Environment and Water (CEEW), said “The Viability Gap Funding (VGF) support for the 4 GWh battery energy storage system announced in the Union Budget and greater thrust on pumped hydro are critical to help India move towards meeting the Energy Storage Obligation targets. The VGF support should however be leveraged to increase our understanding of the technology and application and should not be considered as a continuous tool for support.”
Custom Duty reduction and exemption: The government announced a reduction in custom duty rates from 21% to 13% for automotives, and exempted it entirely for capital goods/machinery used for manufacturing of lithium ion cells used in EV batteries. This is a welcome step towards reducing the cost of electric vehicles, and was lauded by experts from the industry, think tanks and civil society organisations.
Rahul Lamba, Co-Founder, The Energy Company, said, “The recent exemption of custom duties on the import of equipment used for manufacturing cells in India represents a positive development for the country's supply chain. The government's focus on new technologies highlights its commitment to embracing and promoting cutting-edge advancements. Additionally, the announced tax slab increase along with the implementation of a vehicle scrappage policy will likely serve to incentivize consumers to consider EVs as a viable option.”
"Though there was no direct investment impact of the finance budget 2023-24 for the charging industry, indirect incentives of exemptions for capital goods and machinery for the import duty on lithium ion batteries, it would be a good sign for users to switch to electric vehicles considering the high upfront costs in the current market scenario. In this way, charging point operators will be encouraged to reassess the return on investment they receive from the existing public charging network and to plan for the expansion of the charging network across the country.” says, Anirudh Amin, CEO & Founder, CPO Assist.
‘’Union Ministry's proposed budget for 2023-24 includes a 0% import duty for lithium ion batteries, which will encourage EV manufacturers and battery manufacturers with the relaxation of imports and manufacturing, which will result in a reduction in the price of electric vehicles.
It will also lead to an increase in EV adoption, which in turn will increase demand for EV chargers. Manufacturers of chargers will greatly benefit from the reduction of basic customs duty on automotive equipment and this will help with manufacturing.’’ says, Harsh Verma, Business development team, Verde Mobility
Support for scrappage: The budget has allocated separate funds to scrap old vehicles of the central government, and also support states in replacing old vehicles and ambulances. This, coupled with the scrappage policy announced last year, would remove pollution vehicles off the roads and make way for a demand for electric vehicles.
“Today’s budget is a pro-EV and a nudge to the auto industry for transitioning towards clean transport, and it is a welcome move. The reduction of Customs Duty from 21 percent to 13 percent on Lithium Batteries and the extension of the subsidies on EV batteries for one more year will help reduce the cost of EVs in India. The policy on replacing old polluting vehicles will help accelerate the transition towards electric vehicles, which is also a welcome step.” says Amit Bhatt, Managing Director (India), ICCT
Greater outlay for FAME II: The budget has allocated Rs 5,171 Crore to the national FAME II subsidy scheme, a significant jump from Rs 2,914 crore allocated last year. This signifies the government's intention to ramp up electric vehicle sales across segments, including buses.
MISSES FOR THE EV SECTOR
While the above announcements will help the momentum of growth that the e-mobility industry has picked up, some expectations of the industry were missed.
FAME II extension: While FAME II received a greater outlay of funds for this year, the budget did not clarify if the subsidy programme will continue beyond 2024. Given that as on date, overall EV sales in India are still only 0.62% of all vehicle sales, there is still a long way to go before electric vehicle growth is market driven. Further, the support provided for adoption of electric buses in the country is a much needed focus area under this programme, which needs a long term vision.
Research and development: The lack of focus on allocating funds for research and development, particularly at a time when battery safety has been a huge concern, stood out starkly. Given India’s dependency on imports across an electric vehicle’s supply chain, there is a strong need to undertake research and development for self sufficiency, particularly on battery chemistry and battery manufacturing.
Uniformity in GST rates: GST rates across the sector vary. For electric vehicles and chargers and charging stations, the government has reduced GST to 5%. However, other components continue to pay a high rate of 18%. The industry would significantly benefit from a standardised reduction in GST rates to 5% across, which would significantly bring down cost of electric vehicles, thereby making them more affordable for masses.
“I applaud the government’s continued efforts to accelerate the country’s transition to sustainable development and green growth, focusing on green fuels, energy, building practices and creating new “green” jobs besides leading to reduced carbon intensity. While this budget is impactful, I feel that release of the Battery Swapping Policy covering subsidies and GST rate rationalisation from 18% to 5% on EV battery would have added further to the green growth agenda.” says Chetan Maini,Co-Founder & Chairman, Sun Mobility
“While the focus on EV manufacturing and adoption is commendable, a larger green industrial policy strategy is missing as R&D investments to develop indigenous capabilities to climb the EV value chain are non-existent. On transport sector decarbonization, EV deployment and ethanol blending incentives are a plus but support for public transportation is missing.” says, Dr. Easwaran Narassimhan, Associate Professor at Centre for Policy Research.