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What’s in it for the automotive sector

Finance Minister Nirmala Sitharaman has made several announcements in the Union Budget 2022 which aim to boost the Indian auto industry and especially the electric vehicle ecosystem.

Via Automatic table HT
Update on:
February 1, 2022, 01:23 pm

Indian Finance Minister Nirmala Sitharaman holds a brochure with the Government of India logo as she leaves her office to present the federal budget to parliament.  (REUTERS)
Indian Finance Minister Nirmala Sitharaman holds a brochure with the Government of India logo as she leaves her office to present the federal budget to parliament. (REUTERS)

On Tuesday, Finance Minister Nirmala Sitharaman in her Union Budget 2022 speech announced a number of measures aimed at boosting the Indian auto industry. These include steps like announcing a new battery swap policy to encourage the use of electric vehicles, and opening defense R&D to private companies developing auto components.

(Also read: Budget 2022: India pushes for stronger EV infrastructure and battery swap technology)

The government has also announced an MSP payment for Rs 2.73 lakh crore along with other benefits to support the agricultural sector, which could ultimately help in increasing demand for cars in the rural market.

Here are the announcements from the Union Budget 2022 that will directly and indirectly help the Indian auto industry grow.

Battery swap policy

One of the key announcements made by the Minister of Finance in the Union Budget 2022 is the Battery Swap Policy. If implemented effectively, this could benefit the entire EV ecosystem in India. Vehicle manufacturers and EV charging infrastructure players will also benefit from this policy which could boost EV adoption in India. The policy is expected to spur movement towards the electrification of fleets for last-mile travel for both people and goods.

Under this battery swap policy, the government will encourage private players to participate in the process of setting up battery swapping stations and technology. The impact of this policy will be limited to certain companies in the sector and is unlikely to bring about any major changes in the Indian electric mobility space at a rapid rate.

Commenting on this, Sameer Aggarwal, CEO and Founder, EV funding company RevFin said the policy will help with widespread battery-as-a-service adoption, reducing the upfront cost of ownership for with electric cars. Rajat Verma, CEO and Co-Founder of li-ion battery maker Lohum said the policy was launched as a much-desired incentive to achieve net-free goals. Samrath Kochar, CEO and Founder of Li-ion battery maker Trontek said the budget will boost domestic battery production and support the development of indigenous capacities.

EVs in public transport

Finance Minister Nirmala Sitharaman said that the government will encourage clean technology and electric vehicles into the public transport space. This will help more car companies that make electric buses and commercial vehicles. This strategy will also benefit those companies’ respective supply chain partners. This announcement will only affect certain players and not the entire automotive sector.

Cars, bikes, scooters won’t get cheaper

Although FM Nirmala Sitharaman has made a number of announcements aimed at boosting the automotive industry as a whole in India, not all of the automotive industry’s expectations have been met. Key needs such as encouraging the adoption of new electric vehicles, cutting taxes and modifying the tax structure have remained largely unchanged. In addition, no major announcements have been made to help the auto industry overcome rising input costs. Therefore, it is likely that the price of cars, motorbikes and scooters will be cheaper. Instead, continued pressure on vehicle manufacturers could lead to increased costs in the short and medium term.

Open defense R&D to private players

The announcement of opening defense R&D to private companies could open a new growth segment for auto parts companies in India. Automakers like Tata Motors and Mahindra have been working in the defense sector through their respective divisions. They have been building vehicles for the Indian armed forces. Now, expanding defense R&D to private companies will give them new revenue and growth areas. However, this will be limited to certain players only.

2,73 lakh crore MSP payment to boost rural car demand

The government has announced a 2,73 lakh crore MSP payment along with other benefits to support the agriculture industry. This can help improve rural economic sentiment and ultimately improve vehicle demand in the rural market, which contributes the majority of sales of two-wheelers, passenger cars and SUVs along with commercial vehicles and small tractors. The second wave of the Covid-19 pandemic, which heavily affected rural economic sentiment, can be revived through this strategy.

20k crore to promote infrastructure projects

The Minister of Finance on Tuesday announced the allocation 20,000 crore for infrastructure projects. This will ultimately drive demand for commercial vehicles as new projects in bulk create demand for new CVs. The announcement of the expansion of national roads across India by 25,000 km in 2022-23 comes at a time when the CV sector is being hit hard by the pandemic and is just starting to show signs of resurgence.

Date of first publication: February 1, 2022, 12:57 PM IST

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