The Union Budget 2025-26 announced investment as one of key growth drivers for the Indian economy. While the budget made no specific announcements in terms of policies or schemes which will directly augment the Auto industry, it did offer a lot in terms of boosting consumption demand via tax rationalizations and proposed various infrastructure related schemes that will indirectly benefit the Automobile makeras in the country.
Key Budget Proposals and their impact:
In a key announcement today, Finance Minister Nirmala Sitharaman stated that no income tax till to be payable upto income of Rs 12 lakh annually. Individuals earning up to Rs 12 lakh annually will not have to pay any income tax under the new tax regime as FM gave relief to middle class by raising exemption limit and rejigging slabs. For salaried employees, this nil tax limit will be Rs 12.75 lakh per annum, after taking into account a standard deduction of Rs 75,000. This is likely to offer a sizable boost to the broad consumption demand and will act major catalyst for the auto sector in coming quarters.
Finance Minister Nirmala Sitharaman said that customs duty on Motorcycles with Engine capacity not exceeding 1600 CC (CBU), Semi-knocked down (SKD) and Completely knocked down (CKD) have been cut from 50%, 40% and 15% to 40%, 20% and 10%. Customs duties on Motorcycles with Engine capacity of 1600 CC & above (CBU), SKD and CKD have also been cut in similar manner.
The government announced setting up a National Manufacturing Mission covering small, medium and large industries for furthering “Make in India” by providing policy support, execution roadmaps, governance and monitoring framework for central ministries and states.
Furthermore, towards a climate-friendly development, the Mission will also support Clean Tech manufacturing. This will aim to improve domestic value addition and build ecosystem for solar PV cells, EV batteries, motors and controllers, electrolyzers, wind turbines, very high voltage transmission equipment and grid scale batteries.
This will encourage small and medium scale manufacturers of electric vehicles and new upcoming battery and semiconductor manufacturers.
The Finance Minister added to the list of exempted capital goods from indirect taxation. She proposed to add 35 additional capital goods for EV battery manufacturing, and 28 additional capital goods for mobile phone battery manufacturing. This will boost domestic manufacture of lithium-ion battery, both for mobile phones and electric vehicles. This will support the EV market to produce batteries at lower cost and thus reducing the pressure both on makers and buyers.
The government has decided that top 50 tourist destination sites in the country will be developed in partnership with states through a challenge mode. Land for building key infrastructure will have to be provided by states. Hotels in those destinations will be included in the infrastructure HML. These measures will increase the flow of tourists to these destinations that will eventually lead to higher demand of vehicles used of tourist vehicles, thus creating an opportunity for automobile makers.
Outlook:
Finance Minister has noted that the proposed new tax structure will substantially boost consumption, savings and investment, by putting more money in the hands of the middle class. It will likely boost vehicle sales across segments. The focus on EV manufacturing and clean mobility shows commitment towards adhering to long term growth agenda for this sector. Initiatives like Dhan-Dhaanya Krishi Yojana and increased Kisan Credit Card limits were seen as potential drivers for rural vehicle demand. FADA predicted these measures would boost sales of tractors, small commercial vehicles, and two-wheelers.