Union Budget Impact on Auto Sector

On February 1st, Indian Finance Minister Nirmala Sitharaman presented the union budget for 2023-24 to the parliament, with environmental sustainability as one of the top seven budget priorities. ‘The Hon'ble Prime Minister has laid forth a vision for "LiFE," or Lifestyle for Environment, in order to spark a movement toward an environmentally conscious lifestyle’. India is strongly committed to attaining panchamrit and net-zero carbon emissions by 2070 in order to usher in a green industrial and economic transformation. Budget 2023-24 expands on the priority of green growth. In her budget address, the minister proposed a slew of initiatives, including the elimination of customs duties on EV battery manufacturing capital goods imports, a focus on hydrogen fuel, and a scrappage policy, among others.

The budget policies are growth-oriented and may help focus on exports, manufacturing, and local value addition, as well as promoting Made in India ambitions and encouraging green energy and transportation, which will create quick sustainable growth. As a priority capital investment toward energy transition, the budget has earmarked 35k cr to promote green initiatives and net-zero emission goods in order to reach net zero emissions by 2070.

The issue of climate change is gradually picking steam, with green growth getting a separate space in the budget. “Green industrial transition in India will mainly be supported by the Green Hydrogen Mission with a financial outlay of ₹19,700 crore," Sitharaman said. The Finance Minister through her statement acknowledged that the administration is consistent and committed in its focus on green mobility, and budget allocation toward the National Hydrogen Mission will bring new opportunities for growth & innovation for the country.

Scrappage policy

The finance minister in her speech laid special emphasis on the scrappage vehicle policy and told, “In addition to vehicle scrappage policy announced in Budget 2021-22, more funds have been allocated now to support efforts to scrap old vehicles under the central government. States will also be supported to help them scrap old vehicles and old ambulances.” This is a step in the direction to encourage a zero-carbon strategy in the auto sector. It is clear that the government wanted to push for greener mobility solutions. The above announcement along with policy changes in EV batteries would see a swift energy mix toward greener fuels like electric, CNG, ethanol, and hydrogen.

The Scrappage Policy, set forth in the previous budget, seeks to phase out automobiles older than 15 years. From April 1, 2023, the govt aims to trash nine lakh automotive vehicles held by central and state governments, transportation companies, and public sector companies. The central and state governments will grant a 25% tax credit on road tax for automobiles acquired by scrapping old vehicles under the Scrappage Policy 2022. Furthermore, the government intends to establish a scrapping plant within 150 kilometers of each metropolitan centre across the country to improve accessibility. The scrapping measures will not only assist the government in moving toward zero carbon, but will also aid on several fronts such as lowering reliance on fossil fuel imports, modernization of vehicle fleet, beneficial impact throughout the value chain by increasing demand in the industry, and so on. Adequate financing for the scrapping of obsolete government cars and ambulances will increase demand for small and medium commercial vehicles, resulting in greater job opportunities in the industry.

Customs duty exempted on lithium-ion batteries

For far too long, India's automobile industry has struggled. It was thought that, in the middle of the ESG and pro-green movements, automakers' entry into the electronic vehicle industry would give them new life. The penetration of EV brands and the acceptance of new technology appears to be slow. Setting up lithium-ion battery production operations has been a difficulty for automakers, and it was the first request of EV players to the government to have customs tax exemptions on the import of capital goods and machinery needed for lithium-ion batteries. So, one of the most significant statements in this budget was the removal of customs duties on capital equipment imported for the manufacture of lithium-ion batteries. The initiatives would not only lower electric car prices but will also provide a significant multiplier for the industry's overall boost in India.

Green Hydrogen Mission

The finance minister emphasised the government's commitment to green transportation by highlighting the recently announced National Green Hydrogen Mission. The National Green Hydrogen Mission is a government effort that promotes hydrogen as a clean and renewable energy source in the country. With an outlay of ₹19,700 cr, the National Green Hydrogen Mission will “facilitate the transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports, and make the country assume technology and market leadership in this sunrise sector".

One of the primary goals of the National Green Hydrogen Mission is to enhance hydrogen production and usage in India, including transportation, industrial operations, and power generation. The objective intends to do this through encouraging the development of hydrogen-producing technologies such as water electrolysis, steam methane reforming, and biomass gasification.

The government is also assisting businesses with financial and technical assistance, as well as pushing the development of hydrogen fuel cell technologies that can utilise green hydrogen, a clean and sustainable energy source.

Time back R K Singh, the union minister was of the view that battery is not suited for long-range vehicles, which should be powered by green hydrogen. “Singh also highlighted the government's goal of making sectors such as steel, shipping, refining, cement, fertiliser, mobility (long-haul vehicles), and refining (petroleum) based on green hydrogen and ammonia”.

Nirmala Sitharaman had affirmed that green hydrogen is a ‘sunrise’ sector in India and under The mission is expected to attract 8 lakh cr of investment to produce 5 million metric tonnes of green hydrogen per annum.

Sectors benefiting from the policies mentioned above.

Reliance Industries, GAIL, NTPC, and L&T will be the biggest beneficiary of the Green Hydrogen Mission. The conglomerates have or have been aggressively planning for investing in green hydrogen projects over the next years. The companies have through agreements with various partners, will combine their strengths and capabilities and collaborate to further advance the technological development of hydrogen electrolysers.

Kabra Extrusion Technik, Exide Industries, and Amara Raja Batteries will benefit from Customs duty exempted on lithium-ion batteries - the customs duty removal on capital goods imported for the manufacturing of lithium-ion batteries will not only reduce prices of electric vehicles but also give a great multiplier for the industry overall boost to make in India.

Ashok Leyland, M&M, and Tata Motors will be the biggest beneficiary of the scrappage policy.