Pitch Report: Auto industry hopes Budget 2025 will provide relief from slowing growth

The auto industry wants the government to encourage the production of hybrid vehicles as a transitional technology with better GST rates.

The auto industry has faced slowing growth in both passenger and commercial vehicle segment this fiscal. It is therefore keenly watching for announcements in the Union Budget that will indicate higher welfare spending and public capital expenditure.

On February 1, the Finance Minister Nirmala Sitharaman will announce the Union Budget 2025-26.

According to analysts, the government's capex push had a direct bearing on the sales of commercial vehicles and ancillary industries. In the last Budget, the capex allocation was Rs 11.11 trillion, which was very heartening for the industry. But, during the year, the pace of national highway construction slackening and the central government focussing on election-related activities had an adverse impact on the industry, according to market experts.

The government has been actively supporting electric vehicle adoption over the past few years, with various subsidies and schemes such as Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) and Production Linked Incentive Scheme (PLIS). In the previous Budget, PLIS allocation had gone up by 7x from the year ago, or to Rs 3,500 crore from Rs 484 crore in the revised estimates for FY24.

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In September 2024, the government replaced FAME with PM E-DRIVE Scheme with a total outlay of Rs 10,900 crore over two years. The new scheme was to subsidise two wheelers, three wheelers, hybrid ambulances and trucks, while it excluded electric cars.

While the industry acknowledges the role these government initiatives had to play to widen EV use, it also wants the government to address delays relating to PLIS disbursements. It also wants the government to take a more realistic approach to value-addition requirements, which is currently set at 50 percent value addition, to qualify for PLIS.

Rationalisation of taxes
Another help they seek is the rationalisation of taxes across EVs, components and supporting infrastructure. While GST on EVs is a reasonable 5 percent, the components are still taxed at 15 to 28 percent. As insiders said, a reduction in GST rates for EV batteries could bring down vehicle closts even by 40-50 percent.

As Dinkar Agrawal, Founder, CTO & COO, Oben Electric, told Moneycontrol, ""Simplifying the GST structure with a uniform 5 percent tax across EVs, components, and charging infrastructure is essential to reducing costs and fostering growth".

Meanwhile, they want the government to encourage the production of hybrid vehicles as a transitional technology with better GST rates. Currently, they are taxed at 28 percent, the industry players want it lowered to 18 percent.