In Budget 2024, catalysts introduced to augment growth for auto sector

auto sector

The Budget 2024-25 introduced by the Hon’ble Finance Minister today presented a detailed roadmap for the Government’s pursuit of ‘Viksit Bharat’ and self-reliant India. The announcements prioritize domestic manufacturing, infrastructure development, job creation, and changes in customs duties. Notably, a significant allocation of Rs 11,11,111 crore (approximately 3.4% of GDP) for infrastructure underscores the government's commitment to fostering a green economy.

The Indian automotive industry is on the cusp of substantial growth, which is being fuelled by the government's recent policies that focus on encouraging local manufacturing and lessening regulatory constraints. With a substantial budget expenditure of Rs 6,921 crore allocated to incentive schemes, the sector is at the heart of the government's 'Make-in-India' initiative. Both Original Equipment Manufacturers (OEMs) and component suppliers stand to benefit from these measures, which are expected to bolster India's manufacturing capabilities.

Customs duty changes are central to these efforts in this budget proposals. While the upcoming sunset clause on battery imports for electric two and three-wheelers might initially seem counterproductive, it aligns with the broader goal of fostering a domestic battery ecosystem.

The efforts of the Government on deep localization in the sector also get reinforced by the proposal to reduce/ exempt customs duty on battery components and parts, critical minerals for rare earth magnets, parts of PCBA, etc.

Additionally, the government's support for the semiconductor industry, through custom duty exemptions on equipment and components, is crucial for the automotive sector's long-term competitiveness.

To alleviate industry concerns, the government has introduced significant GST reforms, including the waiver of interest and penalties for litigation cases and an extended timeline for Input Tax Credit (ITC) claims for past. These measures will provide much-needed relief to the automotive industry, which has been grappling with complex GST-related issues.

The industry has also welcomed the government's continued support for electric vehicles through the FAME and EMPS schemes. However, more clarity is needed on how the allocated funds will be utilized, particularly regarding potential scheme extensions.

The government's focus on job creation, through employment-linked incentives and credit guarantees for MSMEs, further strengthens the overall ecosystem. This will help in creating a ripple effect on the economy and the automotive sector in specific.

These concerted efforts demonstrate the government's commitment to transforming India into a global automotive manufacturing hub. The industry is optimistic about capitalizing on these opportunities to achieve self-reliance and compete effectively on the international stage.

(With contributions from G. Sriram, Tax Professional, EY India.)

Views are personal and do not represent the stand of this publication.