Budget 2022: Expectations For Automotive Sector To Drive Economic Growth

The Indian Automotive/Mobility Industry has faced headwinds on multiple fronts over the last few years, especially on liquidity crunch, emission norms, rising fuel prices, the pandemic, more recently chip shortage and commodity price increase, and these factors have dented the recent surge in pent up demand especially in Passenger Vehicle and Commercial Vehicle segments. Given the micro and macroeconomic uncertainties, various players in the Automotive ecosystem, be it OEMs, suppliers, dealers or service providers would be keenly looking at Budget 2022.

Electric vehicles will see strong adoption in the coming years, with 2-wheelers, 3 wheelers and fleets leading the way. This segment is also seeing action from startups and new entrants, and traditional players have realized the potential and are providing massive investments too. Apart from investing in R&D and manufacturing, many leading Two-wheeler (2W) manufacturers are investing in EV start-ups as well. 

In terms of expectations, the subsidies through FAME-2 and other tax relief items will be expected to continue. While the usage of the planned FAME-2 budget has been lower than expected, it is expected to rise in the coming months, especially given the traction in the 2W space. Some of the caps in ex-factory price can be relooked to help include more vehicles in the fray. Also, a partial relaxation in the aggressive localization criteria for incentives may help boost demand. Currently, EVs attract a 5 per cent GST but many EV components are at 18 per cent or 28 per cent; a reduction in GST for such components will help in bridging the cost delta of ICE and EVs. 

There is a strong need to continue incentivizing R&D in e-mobility, especially in battery technology innovation. There has been a strong response from industry players for the PLI scheme related to Batteries (ACC), which is very encouraging and will drive innovation, investment and eventually higher adoption of EVs. Another proposed PLI for Integrated Chip (IC) will go a long way in establishing a strong ecosystem and similar policies for other EV components will help boost the industry with investments and innovation. 

On the charging infrastructure front, there is a need to focus on building a strong post-sales battery supply ecosystem that aids battery swapping. A GST rate reduction for standalone batteries and incentives for the inclusion of swapping/subscription options in the FAME-2 outlay may help mitigate these anxieties. 

Hydrogen fuel cell vehicles can be explored and encouraged. A dedicated corridor can be developed on popular commercial routes and increasing adoption of H2 in commercial applications can eventually help increase PV penetration as well to establish an ecosystem. However, this will need significant standards and regulations defined first, considering the safety issues associated with hydrogen handling. 

India is targeting reducing carbon emissions by 33 to 35 per cent by 2030 as part of its commitment under the Paris Climate Agreement and there is also a more recent commitment to achieving net-zero emissions by 2070 (announced during COP26). To achieve these targets, there will be expectations from the budget on a comprehensive future of energy policy to help boost the value chain and application of alternative fuels for specific use cases in mobility. 

With the increasing usage and relevance of connected car technology in modern-day vehicles, there is a need for a comprehensive policy around testing, metrics of evaluation and eventual deployment of such technology. Also, given the positive effect of such driver-assist systems on road safety, means to increase the availability of such systems in entry-level vehicles and commercial vehicles can be looked at.

While the shared mobility segment (especially ride-sharing) helps considerably in reducing congestion through an increase in per capita usage of the vehicle, it has seen a significant drop in demand during and post the pandemic. With the long term in mind, it is important to consider incentives to increase occupancy in vehicles and the budget may want to start addressing the needs of this segment. Integrated transport solutions like the tie up of metro trains with first and last-mile mobility during the planning phase are essential. There is a need for consistent public and private sector standards and definitions across a suite of shared mobility service models that guide public policy and distinguish between types of services for users.

While the proposed Scrappage Policy 2021 looks promising, there need to be additional budgetary considerations around building the reverse infrastructure for scrappage, failing which it may not get off to a strong start. The scrappage scheme should incentivize the replacement of old vehicles with EVs, and this can potentially be a win-win situation. 
Traditionally the government has been bringing new policies to tackle issues and bail out the industry. In a fast-evolving industry like auto, we must stay ahead of the pack bring in aggressive policies and support the industry players to step up and establish India as a global auto hub for innovation and manufacturing. The PLI schemes, FAME subsidy and commitments to reduce pollution are in the right direction. 
 

(Atul Jairaj and Sumit Mishra are Directors in Deloitte India. Vishwas Kashyap is manager in Deloitte India)