The Union Budget 2024-25 will be unveiled at a time when the domestic automobile sector is on a sound growth trajectory. All segments viz., Passenger Vehicle, Commercial Vehicle, Three-Wheeler and Two-Wheelers posted growth in Q1 of 2024-25 over the Q1 of last year. While Passenger Vehicles and Commercial Vehicles have witnessed moderate growth, the Two Wheelers and Three Wheelers have posted very handsome growth in double digits. Within Two-Wheelers, Scooters have posted even higher growth based on some green shoots of recovery in entry level two-wheelers.
Sales of Passenger Vehicles in Q1 of 2024 has been the highest ever of Q1 and also crossed 1 million units in Q1 for the first time, with a growth of 3%, compared to the previous year. Sales of Three-Wheelers in Q1 of 2024-25 grew by 14.2% compared to last year, with 1.65 Lakh units, which is again the highest ever in Q1. Two-Wheelers also posted a growth of 20.4% in this Quarter, compared to last year, with sales of 4.99 million units while Commercial Vehicles posted growth of 3.5% in Q1, compared to last financial year, with sales of 2.24 Lakh units.
Policy support:
The commercial vehicle ecosystem is directly connected to the government led infrastructure spending which makes the demand of commercial vehicles a crucial metric, reflecting the pulse of the nation’s infrastructure development and driving growth for CV financiers, manufacturers, and OEMs.
The industry seeks further policy intervention in rationalize GST structure for auto components, incentives and tax benefits for Research and Development, implementing calibrated import duty structures for auto components.
Additionally, continued support for electric vehicle adoption through extended FAME-II subsidies, increased charging infrastructure investments, and reduced GST rates on EVs remains paramount for accelerating India’s transition to sustainable mobility.
The industry body, Society of Indian Automobile Manufacturers (SIAM), suggested the government to provide SOPs for promoting EVs and to introduce additional incentives for vehicle scrapping in the upcoming Budget. It suggested additional incentives for scrapping old vehicles to enhance the impact of the existing scrappage policy.
SIAM also expects the government to continue incentivizing EVs and come up with schemes like the much-anticipated FAME 3 policy, in addition to its existing PLI schemes for the industry.
SIAM believes that government must take initiatives that are good for economic growth, and capital expenditure has a multiplier effect on all segments of the economy. While the allocation of capex in the interim budget was 1 lakh crore, which was 11.1% higher than the previous year, it expects that the focus on allocating more capex should continue.
Semiconductors in focus:
The electronics and semiconductor industry expects a continued strategic focus on this sector. It expects a quick rollout of SPECS 2.0 and an expansion of the budget allocated to the India Semiconductor Mission. In addition, the industry seeks for a balanced distribution of funds. With multiple large projects seeking approval, the allocation will soon run out and MSMEs that are critical to building the semi ecosystem may miss out.
The Union Budget 2024 is anticipated to provide ongoing policy assistance and PLI schemes to the auto and auto component sectors to encourage domestic production.
FAME I & II
The International Council on Clean Transportation (ICCT) in its latest report on the FAME scheme concluded that EVs accounted for just 7% of vehicle sales in India in FY 2023–2024. High upfront cost and a lack of access to financing continue to pose major challenges for the uptake of EVs in the country.
ICCT suggests that policymakers may consider enhancing efforts to incentivize EV uptake in other vehicle segments, including the private passenger car segment, private bus segment, and truck segment, which are collectively responsible for an overwhelming majority of well-to-wheel CO2 emissions in the country. Promoting the uptake of EVs in these segments could also help spur domestic demand for EV batteries in a short span of time, owing to their relatively larger battery size, and potentially facilitate a rapid reduction in EV battery prices.
If the government seeks to build on the achievements of FAME I and II, continued fiscal support aimed at overcoming these barriers could be part of an effective policy toolkit to help accelerate the EV adoption across a diverse range of consumers.
ICCT Recommendations for domestic EV segment:
Two Wheelers: To facilitate cost parity between E2Ws and conventional two-wheelers, consider offering purchase subsidies to electric two-wheelers until 2025–2027, beginning with a higher subsidy of ₹15,000/kWh of battery capacity, capped at 40% of the ex-showroom price, and gradually phase down the subsidy amount in line with EV cost reduction trends.
Passenger Three-Wheelers: Consider continuing purchase incentives of at least ₹10,000/kWh of battery capacity, capped at 20% of ex-showroom price, to enhance TCO and upfront cost competitiveness of electric passenger three-wheelers.
To facilitate financing for electric passenger three-wheelers, consider offering lower interest rates, longer payback periods, and credit guarantees through notified agencies such as government banks and other financial institutions.
Four- Wheelers: Consider offering subsidies of at least Rs 10,000/kWh, capped at 20% of ex-showroom price, for the purchase of private electric passenger cars.
Buses: Consider prioritizing the electrification of private inter-city buses by facilitating access to favorable financing through interventions such as interest subvention, longer loan tenures, and credit guarantees.
Trucks: To accelerate BET uptake, consider offering a purchase subsidy of Rs 20,000 per kWh of battery capacity, capped at 40% of ex-showroom price, for purchase of battery electric trucks.
Outlook
The government’s focus on infrastructure should continue. It has a multiplier effect on various sectors including the automobile and auto components sector. Auto sector supports multiple sectors as part of its long value chain. Major industries such as rubber, plastics, steel, electronics, and other semi processed and intermediary components are critical end users. Enhancing infrastructure will certainly support the sector in the longer run. Adequate incentives for owners to scrap their older vehicles should also be put in place. The government will also need to announce longer-term policy support for the EV industry whether by extending FAME II or brining in the new FAME III policy. Inclusion of private players for charging infrastructure will also help proliferate EV adoption in India. The industry maintains a stance of cautious optimism, buoyed by the launch of new models which are expected to sustain a high level of market enthusiasm.