Revving Up India's Electric Vehicle Future: Exploring the Union Budget 2023

Posted on: Feb 21, 2023 | | Written by:

Revving Up India's Electric Vehicle Future: Exploring the Union Budget 2023

Published on February 21, 2023. EST READ TIME: 4 minutes

Introduction to the Union Budget 2023

India's Union Budget 2023 has been a much-awaited event. The budget is seen as an important step towards India's transition to the electrification of its transport sector. The budget has announced several measures to encourage the adoption of electric vehicles (EVs). The budget has allocated Rs. 51.72 billion (about USD 631 million) for the Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme, which will provide incentives to manufacturers to produce EVs and also encourage infrastructure development. Additionally, the budget has proposed multiple steps in order to promote greener and cleaner mobility.

Its significance for the electric vehicle (EV) industry

According to Business Standards, the electric vehicle (EV) sector of India has reached the mark of one million units sold in the calendar year of 2022, contributing to 4.7% of total car sales.Ola Electric led the way with 18,220 vehicle registrations in January, trailed by TVS Motor Co. and Ather Energy companies. India was the third largest vehicle market by sale volumes in December 2022, overtaking Germany and Japan.

Furthermore, production-linked incentive or PLI plans for the ACC battery as well as car and automobile component production sectors are aligned with FAME-II aims and are expected to draw a fresh investment. It is expected that as production prices fall, EVs will be a more appealing option for customers.

That’s not all. As per the 2023 Economic Survey, India's domestic electric vehicle market would increase at a CAGR of 49% from 2022 to 2030, with annual sales reaching around ten million units by the end of 2030. Furthermore, the EV sector will provide approximately 50 million related and indirect employment by 2030.

The game was now on for EV makers and governments to work together to drive demand towards sustainable energy options, to which they have reacted enthusiastically. Let’s start with the initiatives taken by the Indian government.

Discussion of the major announcements and initiatives in the Union Budget 2023

Here are the highlights of announcements and initiatives made for the automobile sector in the 2023 Union Budget:

● FAME-II allocation

As mentioned earlier, probably the biggest move towards the promotion of electric automobiles in the 2023 Union Budget was an allocation of INR 51.72 billion by the Indian government towards its flagship program – FAME-II. The money was granted in order to subsidize and promote clean energy adoption in vehicles. This value represents an increase in budget allocation of 80% over prior years.

Whereas the FAME-II budgetary allocation was only 46% utilised in the financial year 2020-21, it was fully utilised in the later years of 2021-22 and 2022-23. This trend demonstrates India's commitment to promoting sustainable transportation and slowly approaching its long-term greener transportation objective. Whereas the country's marketplace for electric vehicles and hybrid cars is still in its early stages, the government is eager to create a conducive environment by offering customer incentives, extending charging stations, and destroying old polluting vehicles. Furthermore, a growing number of public transportation are shifting to electric modes in places like Delhi, Telangana and Kerala, and many others.

● Scrapping policy

The Union Budget 2023 places a special focus on the car scrapping policy, giving sufficient cash to replace vehicles older than 15 years. Automobile makers applauded the move, which would present a big opportunity for fleet modernisation while significantly reducing fossil fuel usage.

The finance minister, Nirmala Sitharaman, stated during the presentation of the Union Budget that all statement government, as well as central government-owned automobiles, notably buses operated by transport companies as well as public sector organisations, that have been operating on the road for more than 15 years, will be demolished and replaced with EVs.

The goal is to eventually benefit the whole automobile industry ecosystem by increasing order volumes for primary electric vehicle equipment manufacturers, increasing output, and creating jobs.

Other than these, which primarily focus on the EV sector, here are some other pointers worth mentioning:

● Hydrogen vehicles

The government authorised the NGHM (National Green Hydrogen Mission), with an initial budget of Rs 19,744 crores, with the goal of making India an energy-independent country and de-carbonizing vital industries. According to the finance minister, the Centre is also assisting the installation of 4,000 MWh of battery storage, and a green credit scheme will be announced under the Act of Environment Protection.

This initiative encourages the use of green fuel, power, and construction methods in order to decrease carbon intensity and generate new green employment opportunities. The finance minister goes on to say that the government is committed to "green growth" as a step towards a greener and more progressive society for residents of the nation. This is a step towards India taking the lead in reducing the global climate issue.

● Fuel-flex vehicles

The finance minister recommended exempting ethyl alcohol from customs duty to aid the Ethanol Blending Program, which is utilised in the chemical as well as petrochemical industries. This will assist in reducing the cost of ethanol in auto flex fuel blends and accelerate the use of flex fuel. The Indian Government aims to rise the overall ethanol output in the nation and anticipates that all the vehicles will be completely flex-fuel capable in the long term. By April 2023, the upcoming electric cars must be ethanol-material compatible.

The effect of the budget on the cost of EV

The Indian government has declared custom duty elimination on imports of certain items as well as machinery utilised in the manufacturing of lithium-ion auto batteries for electric automobiles. This is aimed at gradually lowering the overall price of domestically manufactured EVs and their car insurance premiums, including the mandatory third party car insurance premiums, in the nation. This new announcement is a welcome change which can inspire national electric auto manufacturers to grow their EV product portfolio.

The Co-founder of Neuron Energy, Pratik Kamdar, says the customs tax exemption on the capital goods & machinery to produce lithium-ion will be a catalyst for the country's transformation to sustainable as well as eco-friendly transportation. He adds that this tax exemption will result in a domino impact on the whole industry with a significant fall in the total cost of the final goods, with battery pack prices anticipated to decline by 5% paired with cheaper initial expenditures. With lower capital inputs in auxiliary supplies such as lithium-ion batteries, it will give an opportunity for new-age enterprises and startups to enter the area.

Conclusion

The budget is quite an ambitious attempt at incentivising the demand for EVs, which is essential to kick-start the EV manufacturing industry in India. The budget has taken a structural approach towards achieving this goal by focusing on promoting the use of EVs, the manufacturing of EVs and developing an EV charging network. The policy direction that it has unveiled will go a long way in mitigating our country's dependence on fossil fuels. While there are numerous challenges that lie ahead, the transition to electric mobility will significantly reduce vehicular emissions and lead to a cleaner environment. It also sets in place an important first step towards creating a robust market for integrated transport solutions, including EVs, and eventually aiding India's economic progress towards its final goal of net-zero carbon emission by 2070.

So, if you are looking to buy a new car, it might be a good idea to get a list of the upcoming electric cars in India. Just be sure you have a third party car insurance policy so you can cover your car while it's on the road.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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