Economic Survey 2022: All about the automotive sector

In an otherwise bleak year for cars, which saw brands like Ford exit the country, the boost in FDI in the first half of the current financial year is the silver lining. (Representative image)

The 2021-22 Economic Survey, tabled by Finance Minister Nirmala Sitharaman wrapped up with an overarching focus on economic recovery, climate change, and growth projections in FY23. With 8-8.5% GDP growth projections in 2023, the survey bore an optimistic outlook for India’s economic activity, although figures pertaining to revenue from excise duties, having registered 23.2 % YoY growth during April-November 2021, could mean that import duty relaxations would not be forthcoming.

Although the automotive sector, particularly the EV sector didn’t receive extensive coverage in the report, there were several highlights pointing towards the construction of robust infrastructure and steadfast adherence to climate goals of achieving a net-zero carbon emission target by 2070. Sustainable development goals, climate financing remain key areas of focus, with the semiconductor shortage having dampened the automotive sector’s growth considerably.

According to the survey, 7 lakh orders for new cars remain pending due to the shortage. On the plus side, the rapid rate of road construction has increased 30.4% more than the previous fiscal year, at 36.5 km per day.

Inflation

Skyrocketing fuel costs remained one of the key public grievances throughout 2021-22, with the survey attributing it to international crude oil prices increasing due to resurgent demand. The high international price of crude oil and high excise duties were attributed to the retail inflation of petrol and diesel, with the admission that the duties were hiked in light of other revenue sources drying up due to “disruption of economic activity”.

FAME II and tackling climate change

The FAME II scheme’s objectives showed up under the report’s “Sustainable Development Goals” section which highlighted several policy decisions aimed towards curtailing air pollution. The survey stated that India has “leapfrogged” from BS-IV to BS-VI emission norms since April 2020, although its effects on manufacturers did not receive mention.

The FAME II scheme, in its second phase, aims to generate demand by supporting 7090 e-buses, 5 lakh e-3 wheelers, 55,000 e-4 wheelers, and 10 lakh electric two-wheelers. The scheme also exempts EVs from any permit requirements for taxis, buses, auto-rickshaws running on electric power.

FAME II remains one of the key drivers of growth for the EV sector with an outlay of Rs 10,000 crore. Its emphasis in the report points at its possible extension beyond 2024, and the widening of its ambit to include benefits for retrofitting existing ICE cars to EV powertrains.

In a move to lower critical air pollution levels around the Delhi NCR region, the government also introduced a ban on diesel cars older than 10 years and petrol cars older than 15 years from the Delhi NCR region.

The survey also stated that over 10.7% of the country’s electrical energy generation for 2020-21 was done through renewable energy sources and at present, renewable energy constitutes over 24.71 percent of the country’s installed power capacity.

FDI boost

In an otherwise bleak year for cars, which saw brands like Ford exit the country, the boost in FDI in the first half of the current financial year is the silver lining we all need. The survey revealed that automobiles were the second largest sector for FDI in the country during this fiscal year, generating $4.9 billion – 10 times more than the amount received in the first half of the previous fiscal year.

The funding received by EV tech startups had a major role to play in this, as did the fact that the previous fiscal year’s FDI bounty was lesser than pre-pandemic levels.

Ethanol policy targets

Ethanol blending targets were once again, highlighted in the survey which once again reiterated the government’s plan to introduce 20% ethanol blending in petrol by 2025 – five years earlier than originally planned.

The survey claimed that among the many benefits of ethanol blending was the fact that it saves $4 billion USD in foreign exchange spent on crude oil per year. Not only that, but it enhances India’s energy security by making it less oil-dependent, lowers carbon emissions, promotes the use of damaged food grains, and increases farmers’ income while creating employment.

The survey also revealed that the government is currently expecting $5.4 million worth of investment to help India achieve its short-term ethanol blending target of 10% by 2022 and long-term ethanol blending target by 2025.