How will the recent budget changes influence the growth of the Automotive Industry in India?

Automotive Sector Perspectives by Siddhartha Gupta , Growth Expert and Director- Mobility

Key Announcements Made –

1) Support for promotion of MSMEs

2) Exemption on import of critical minerals such as Lithium, Nickel etc.

Announcement 1: Credit Guarantee Scheme for MSMEs in the Manufacturing Sector

Impact: Positive

• MSME which contributes approx. 30% of the GDP and provide employment to nearly ~ 123 million people, which in turns meet the objective of enhancing the manufacturing capabilities for the sector. This credit support is crucial as MSME’s are facing an overall credit gap ranging from INR 20 – INR 25 trillion.
• Initiatives such as facilitating easier access to the capital for MSME’s that are an integral part of automotive supply chain through provision of self-financing guarantee fund , incorporation of newer credit assessment models by PSU banks and extending support during stress periods for SMA accounts along with reducing the threshold of turnovers in TReDS platform will further upgrade and improve their productivity, enhance existing technology, and become more competitive in India and globally.

Announcement 2: Complete exemption of Custom Duty on Lithium and Nickel Imports

Impact: Neutral

• To further promote the manufacturing of affordable electric vehicles in India and advance the EV30@30 mission, the government move towards exemption of custom duty on lithium and nickel is a commendable move.
• This measure is expected to lower the cost of Lithium-ion batteries, which are crucial for EV’s (battery cell account for approximately 40%-50% of an EV’s cost), thereby reducing the overall cost of electric vehicle production.
• This exception is in line with the Government's aim to promote EV adoption and its transition to a low-carbon economy.

Overall Impact: Neutral

The automotive and automotive component industry were expecting the government to address key growth drivers such as the increasing the incentives under the scrappage policy, reduce tax slabs for hybrid vehicles, and rational tax slabs for auto components.

However, since there were no announcements, it is expected that the government may introduce key policies during the year to further promote the Automotive industry and EV manufacturing in the country.

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