Union Budget 2023 Growth Oriented But Needed More Specifics For The EV Sector: Experts

Among several important announcements made during the Union Budget 2023, ‘green growth’ took the centre stage as finance minister Nirmala Sitharaman kept stressing on achieving the country’s net-zero goals by 2070, efficient energy use across sectors, and bolstering the overall economy with the help of greener practices.

In fact, this year’s budget adopted green growth as one of the seven priorities, including youth power, financial sector, infrastructure and investment, and inclusive development, among others. 

“We are implementing many programmes for green fuel, green energy, green farming, green mobility, green buildings, and green equipment, and policies for efficient use of energy across various economic sectors,” said Sitharaman during her Budget speech on Wednesday (February 1). 

“These green growth efforts help in reducing carbon intensity of the economy and provide for large-scale green job opportunities,” she added

From allocating INR 35,000 Cr for priority capital investments towards energy transition and net zero objectives to extending the customs duty exemption on the import of capital goods and machinery required for the manufacturing of lithium-ion (Li-Ion) cells needed for electric vehicle (EV) batteries, the Union Budget was largely in sync with India’s green goals.

While the announcements largely got lauded by the overall EV ecosystem, it must be noted that this year’s budget has stayed away from implementing any significant changes in the existing norms and policies aimed towards incentivising EV manufacturing.

Before we delve deeper into analysing the impact of this year’s budget on the EV ecosystem, let’s first take a look at the announcements made to achieve the green goals:

• Battery energy storage systems with a capacity of 4,000 MWh to be supported with Viability Gap Funding 
• An outlay of INR 35,000 Cr for priority capital investments towards energy transition and net zero objectives
• Excise duty exemption on GST-paid compressed biogas containment 
• 100% custom duty exemption on the import of capital goods and machinery for Li-ion cells 
• Basic customs duty rates on goods other than textiles and agriculture reduced to 13% from 21%
• Subsidies on EV batteries extended for one more year
• Allocation of adequate funds to the states to scrap old polluting vehicles 
• Mention of a Green Credit Programme under the Environment (Protection) Act 

However, it must be noted that the EV industry had several other expectations pertaining to tax rate simplification, subsidies, and more, which all remained unaddressed.

Will This Provide A Major Boost To The EV Sector?

The EV industry was looking forward to some crucial developments in this budget, including making EVs a part of the Priority Sector Lending (PSL) so that their financing can become cheaper, extension of the FAME-II scheme, and unification of GST rates for vehicles and spare parts.

While remaining positive on ‘green’ being a dominant theme in the budget, Amit Gupta, CEO and cofounder of Yulu said, “ It is a growth-oriented budget but we would have liked to see some more specifics for the EV sector – like harmonization and simplification of GST along with the reduction to 5% for float batteries would give a fillip to EV adoption.”

“Green cities and green mobility can contribute significantly to India’s net zero commitment. While we await details, building city infrastructure and urban policies that prioritise alternative mobility solutions like subsidised land allocation, parking zones, and dedicated lanes along with subsidised power supply to battery swapping networks will accelerate the nation on its green journey,” Gupta added.

He, however, noted that lowered duties for encouraging Li-ion cell manufacturing in India will help lower the cost of batteries and foster the EV ecosystem in the long term.

It must be noted that under the government’s Make In India initiative, domestic manufacturing has taken a front seat, and the government has already taken several measures to enable Li-ion battery manufacturing in India. 

However, due to a lack of access to raw materials, including lithium, India still remains heavily dependent on countries like China for Li-ion cells and, in many cases, for batteries as well. And batteries constitute almost 50% of the total cost of EVs, hence, if prices of EV cells and batteries increase, it would ultimately pin holes in people’s pockets.

To boost domestic cell manufacturing, the Indian government introduced a Production Linked Incentive (PLI) scheme in 2021, with an estimated outlay of INR 18,100 Cr.

But EV manufacturing and adoption have been quicker so far, compared to the wholesome development in the overall EV infrastructure.

Prominent EV manufacturers, including Ather Energy, Ola Electric, Altigreen Propulsion Lab, have started manufacturing EV batteries in-house, but the larger section of the market still remains dependent on importing the batteries. While Li-ion cells for batteries are still majorly imported, a few players like Log9 Materials and Ola Electric have started cell manufacturing as well.

“The announcement of the extension of subsidies on EV batteries for one more year coupled with the decision to continue the concessional duty on Li-ion cells for batteries for another year is helpful. However, we look to the government to extend these for three years to provide a stable policy environment for the industry,” said Amitabh Saran, founder and CEO of Altigreen Propulsion Lab.

Meanwhile, Maxson Lewis, founder and managing director of Magenta Mobility said that the continuance of the concessional duty on Li-ion cells for batteries for another year is needed for the fledgling EV and battery storage industry and will go a long way in increasing adoption via low cost of transition for the end user.

However, he said that the budget has the heart in the right place for green initiatives, but it is “not path-breaking overall”.

Also, as per Lewis, it remains to be seen how the allocation is laid out for the INR 35,000 Cr fund announced as a priority capital investment to achieve the net zero carbon emission target.

Not A Path-Breaking Budget?

From battery charging and swapping infrastructure to battery recycling, the EV space requires immediate and more prominent government focus in these areas to ensure a uniform building up of the EV space. However, the budget lacked any concrete announcements pertaining to the overall infrastructure development. 

Saurav Goyal, cofounder and COO of Metastable Materials opined that the government needs to focus on battery recycling as well. 

“…along with focusing on green energy growth, the government should have also introduced some policies regarding solving the major problem which pertains to the EV industry – recycling of the batteries. This will help the government to eliminate any future hurdle in achieving the net zero target,” Goyal said.

The Indian government published the Battery Waste Management Rules, 2022, in August last year to ensure environmentally sound management of waste batteries. It mandated a minimum level of recovery of materials from waste batteries. However, there has been no further update on the steps taken to ensure the changes, thereafter. 

Meanwhile, this budget came at an important juncture when India has taken a significant step forward in EV adoption and manufacturing across vehicle segments. In 2022, India’s EV registrations crossed the 10 Lakh mark for the first time. On the other hand, the country has already seen EV registration of over 1 Lakh within a month of entering 2023.

In 2022, Union Transport Minister Nitin Gadkari has set an expectation that the number of EVs in India would go up to 3 Cr by 2024. 

In Economic Survey 2022-23, the Indian government said that the domestic EV market is expected to grow at a compound annual growth rate (CAGR) of 49% between 2022 and 2030 and hit one crore units of annual sales by 2030. 

“The EV industry will create 5 Cr direct and indirect jobs by 2030,” the report noted.

While the government has taken some major steps to incentivise the EV sector growth and help the industry leapfrog in the last two years, the requirement would be the same going forward, as EV is still a nascent industry in India.

“We would like to see more being offered in terms of incentives for the entire EV Infrastructure sector… India could quickly become the global hub for EV, and we would have liked to see more incentives to encourage domestic manufacturing in the sector,” said Arjun Sinha Roy, cofounder of iRasus Technologies.

However, from the investment perspective, the cleantech space continues to be lucrative following the budget.

“We knew that the government is serious and positive about the new zero goal but this budget reinforces that direction and makes it even more clearer,” said Arpit Agarwal, director at Blume Ventures, which has investments in ElectricPe, Battery Smart, and Yulu. 

“Government is not closed on making any changes whether in GST or customs or anything else during the course of the year. So, this is not the only available window. We are hopeful that more changes might happen irrespective of budget,” Agarwal added.