- Date : 21/01/2023
- Read: 6 mins
How can Indian EV Industry be a force to reckon with in the world? How can India become a global hub for EV Manufacturers? This article discusses the possible steps that the Government can take to help EV businesses have an edge over their global competitors.
The Union Budget of 2023-24 will be presented on 1st February 2023, and India's electric vehicle (EV) industry is expecting fiscal and policy support from the government to help spur the sector's growth. As the EV industry is comparatively young and faces several challenges, the industry is hoping the upcoming budget will provide the right incentives to help bring in new investments and help it achieve its full potential. This article will list the key expectations of the EV industry from the Union Budget 2023-24.
In recent years, electric vehicles have become increasingly popular and the industry is ready to take off. The government has taken steps to promote electric mobility, such as the FAME scheme, but other initiatives like infrastructure for charging, Research & Development, supply-side support, etc were unable to gain traction due to challenges such as lack of resources, and COVID-19. To ensure the success of the industry, it is essential to focus on forming a strong EV ecosystem that allows for self-sustainability.
The Society of Manufacturers of Electric Vehicle, in a statement, proposed certain steps that the Government could take in the upcoming Budget to help the Indian EV industry become a global hub. These steps are mentioned below:
Incentivizing Recycling of Lithium-Ion Batteries
A policy for recycling of Lithium-Ion batteries is needed as the Industry is in its fifth year of existence. To support the R&D activities related to the recycling of batteries, a 200% tax rebate may be granted (as existed earlier). Additionally, the Government should look into recruiting electronic component buying and recycling agencies and should consider bringing out a tender for this purpose.
Currently, GST of 18% is applied to all transactions at EV Charging Stations and Battery Swapping Stations. Corporate customers can claim input tax credit for this GST, but retail customers must pay the tax as an additional cost. The GST rate for BaaS and EaaS Models of batteries should be reduced to 5% from 18%.
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Replacement of Batteries
- Battery Swapping Policy: A Battery Swapping Policy, which was announced in the previous year's budget, is yet to be implemented. NITI Aayog has consulted with relevant parties, but the final policy is still pending and needs to be put in place to boost this segment.
- Rationalization of GST: The cost of EV ownership for fleet operators, last-mile delivery companies, and the last-mile connectivity sector will be reduced if GST on swap batteries is decreased. This will go a long way in helping EV businesses become self-sustainable in the long run.
- Infrastructure for EV Charging and Swapping: To speed up the growth of e-mobility, a priority should be placed on building EV charging and swapping infrastructure. This goal can be accomplished through the use of FAME incentives for the development of charging and swapping facilities.
- Install Battery Swapping Stations at Gas Stations: A special corpus fund should be created to enable installing of battery swapping stations at all gas stations of four large oil and gas PSUs, namely, IOCL, BPCL, MNGL and IGL.
- Extending FAME II subsidy for extra or float batteries: Currently, FAME II subsidies are provided to vehicle manufacturers, but there is no subsidy for float batteries used in a battery swapping network. It is strongly recommended that the subsidies be extended to these float batteries in the network as well (this is part of the draft EV policy also) to boost investments in this industry.
Taxation
- Uniform GST: Currently, a GST of 5% is applicable to electric vehicles, but there is confusion around GST for EV spare parts; a rate of 28% is being applied (except for batteries). It’s requested to impose a consistent 5% GST on all EV components (spare parts).
- Reduction in Customs Duty on Cells: As the production of Lithium-Ion cells within India is still in its early stages, it is requested that the customs duty percentage for cells used in EV production be reduced to 0% until local manufacturing of cells begins in India.
FAME Subsidy
The validity of FAME II scheme should be extended because the goal of increasing penetration of e-mobility has not been achieved yet.
Instead of being based on time, the FAME II scheme should be tied to the progress of the e-mobility conversion.
The subsidy should be made available to customers directly under the new FAME II program.
Expand the scope of FAME to cover all commercial vehicles (light/ medium/ heavy), on a pilot basis, as India needs to prepare for the transition to e-mobility in trucks and HCVs in the next 3-4 years.
FAME subsidy should also be made available to electric tractors to help decrease fuel imports and emissions of GHG.
The Government should set aside specific funds and provide guidance to the Agriculture Department to incentivize the purchasers of e-Tractors.
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Promote R&D
Due to a lack of research and development on battery storage for electric vehicles, the government should consider offering grants or incentives to encourage innovation in this field.
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Skill Development
Currently, there is a lack of trained personnel for the R&D, production or repair of EVs. Grants/ incentives can be provided to establish vocational training centres for the EV sector.
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CAFÉ II Norms
Pure EV manufacturers are not receiving any kind of reward. Letting pure EV businesses exchange credits, they obtain by manufacturing with ICE OEMs will discourage ICE manufacturing and provide a level playing field for modern companies.
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EV Financing
Financing Electric Vehicles should be made part of priority sector lending to ensure that more capital is made available for the sector.
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Conclusion:
The Union Budget 2023-24 is being presented at a time when inflation is high, the global economy is in a downtrend and political uncertainties are high. If the suggestions included in the article are adopted, these will go a long way in helping the EV industry become self-reliant in the long run.
