Strengthening the local supply chain is crucial for reducing import dependency and realizing the 'Make in India' vision
As the engines of India's economy rev up for the Union Budget 2024, the automobile sector finds itself at a critical crossroads. The industry, which contributes more than 7 per cent to India's GDP and employs millions, stands poised for a transformative leap – if the right policies are put into gear.
With global supply chains still reeling from recent disruptions and the push for electric mobility gaining momentum, Indian automakers are pinning their hopes on budget measures that could turbocharge local manufacturing and streamline supply networks.
Extension of the FAME-II Scheme & Infrastructure Development
The Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme has been a catalyst for EV adoption in India. Launched in 2019 with a budget of Rs 10,000 crore, it offers subsidies on EV purchases, focusing on public and shared transportation. The industry is pushing for an extension of this scheme to maintain the momentum in EV sales, which saw substantial growth in 2023, particularly in the two-wheeler and three-wheeler segments. Continuing these incentives is crucial for sustaining growth and reducing dependence on fossil fuels.
The automotive sector is also banking on continued capital expenditure for infrastructure projects to facilitate seamless movement of goods and components. Initiatives like PM Gati Shakti, a Rs 100 lakh crore project aimed at holistic infrastructure development and the National Logistics Policy are expected to enhance logistics efficiency and reduce costs. For automakers, this translates to improved connectivity between manufacturing hubs, suppliers, and markets, potentially streamlining the entire supply chain.
Tax Rationalization
High taxes have long been a thorn in the side of the automotive industry. Currently, automobiles face a 28 per cent GST, with an additional cess of 1 per cent to 22 per cent depending on the vehicle type. The sector is advocating for a more balanced tax regime, particularly for luxury cars. A reduction in GST rates or restructuring of the cess could make vehicles more affordable, potentially boosting sales and contributing to economic growth.
Support for Local Manufacturing and SMEs
Strengthening the local supply chain is crucial for reducing import dependency and realizing the 'Make in India' vision. The industry is seeking robust support for small and medium enterprises (SMEs), which form the backbone of the automotive component industry. This includes streamlining processes, promoting digitalization, and offering incentives for local manufacturing. By providing SMEs with access to advanced technologies, financial support and skill development programs, the government can fortify the local supply chain, create jobs, and foster innovation.
EV Financing Support
The inclusion of electric vehicle financing under priority sector lending is another key expectation. This move would make EV financing more accessible and affordable, encouraging more consumers to transition to electric vehicles. By mandating banks to allocate a certain portion of their lending to this sector, it could result in lower interest rates and more favorable loan terms for EV purchases, making electric vehicles accessible to a broader segment of the population.
As EV adoption rises, so does the demand for batteries. The industry is calling for comprehensive policies to support battery manufacturing, including incentives for setting up production units and R&D facilities. While the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery storage is a step in the right direction, more targeted incentives are expected. These could include tax breaks for R&D investments and subsidies for production facilities, helping India compete with established battery manufacturing hubs like China and South Korea.
Export Promotion
To elevate India's status as a global manufacturing hub, the automobile sector is advocating for strong export incentives. These could include measures such as duty drawback schemes, export promotion capital goods schemes, and special economic zones focused on automotive manufacturing. Such incentives would not only boost exports but also attract foreign investment, further strengthening India's position in the global automotive value chain.
As budget discussions heat up, these measures could reshape the industry's future and accelerate India's journey towards becoming a global automotive powerhouse. The government's response to these expectations will be crucial in determining India's competitiveness in the global automotive market and its progress towards a sustainable and technologically advanced economy.
(The author is the Director and CEO of Godawari Electric Motors)
(The views belong solely to the author.)