The Indian auto industry is undergoing significant transformation in terms of consumer preferences, shift towards sustainable transportation, evolving EV ecosystem, and consistent policy support. As consumers become more eco-conscious and cost-sensitive, EVs have gained traction. The government has been instrumental in this shift, providing subsidies for both demand and supply-side measures, while also reducing GST on EVs to just 5%, compared to the higher tax rates on ICE vehicles. These efforts have created a favorable environment for the growth of the EV sector. Auto players believe incentivizing local manufacturing of essential components is necessary to boost self-reliance in the sector. Further, the government’s sustained 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.
The industry, mostly auto components, faces a complexity in the classification of auto parts, components, and finished vehicles under the Harmonized System of Nomenclature (HSN). This complexity leads to confusion and inconsistent application. Currently, manufacturers procure electrical components at 12% and 18% GST and mechanical parts at 28%, while the final vehicle is taxed at 5% to encourage adoption. A more consistent GST structure across components could help streamline operations, improve working capital efficiency, and accelerate the expansion of EV infrastructure, ultimately supporting India’s long-term vision for clean mobility. Grouping similar components or those with similar end uses under a unified category would reduce complexities, improve compliance, and eliminate the need for litigation.
There are many regions across the country with underdeveloped EV infrastructure. In such regions, Hybrid vehicles are seen as an effective alternative between traditional internal combustion engine (ICE) vehicles and fully electric vehicles (EVs). Currently, hybrid vehicles are taxed at the highest GST rate of 28%, making them less attractive compared to EVs or conventional petrol/diesel vehicles. A reduction in the GST rate for hybrid vehicles would make them more affordable for consumers, promoting their adoption. This would not only help reduce carbon emissions but also decrease import dependency on crude oil.
The foreign manufacturers, currently in the luxury passenger segments, expect a reduction in trade barriers and simplifying regulatory frameworks. These measures will integrate India into global supply chain, while any additional measures that lower cost of doing business, can result in attracting new investments and boost advent of new technologies.
Outlook:
In the recent Global Auto expos held in January 2025, the industry showcased it readiness and intent to a bigger play in the new energy vehicle segment. Budget allocation on facilitating the EV ecosystem like charging infrastructure will give further lift to sustainable mobility. Allocating a budget for better and safe road infrastructure will facilitate the growth of the auto industry. A strong push for incentives to make EVs more accessible, not only for individual consumers but also for businesses committed to reducing emissions and offering cleaner transport options, will be vital.