Tuesday, March 28, 2023
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Budget 2023: Green push for auto sector — funds for scrapping old govt vehicles, cheaper EVs

No import duty on machinery required to manufacture lithium-ion cells for batteries used in EVs, specific budgetary allocation for scrapping & replacing old govt vehicles.

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New Delhi: With a focus on green mobility, Finance minister Nirmala Sitharaman on Tuesday said specific budgetary allocation for old vehicle scrappage, while also announcing custom duty exemption on import of machinery required to manufacture lithium-ion cells for batteries used in electric vehicles.

During the one-and-a-half hour long Budget speech, Sitharaman also announced tweaks to basic custom duties on certain vehicles.

“Replacing old polluting vehicles is an important part of greening our economy. In furtherance of the vehicle scrapping policy mentioned in Budget 2021-22, I have allocated adequate funds to scrap old vehicles of the central government. States will also be supported in replacing old vehicles and ambulances,” the minister said. She, however, did not mention the amount of funds to be allocated for the same.

She added, “To further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles.”

Shamsher Dewan, senior vice president & group head – Corporate Ratings, ICRA Limited, said multiple proposals in the Union Budget are seen favourable for the automotive sector. A sharp 33% increase in capital investment outlay, identification of critical transport projects for first and last-mile connectivity, and relaxation in personal tax rates shall aid the demand for the auto sector, he said.

“Thrust on green energy continues with specific budgetary allocation for old vehicle scrappage, energy transition, and viability gap funding for battery storage solutions with 4000 MWh. Customs duty exemption on the import of capital assets for manufacturing lithium-ion cells for batteries used in electric vehicles shall facilitate EV ecosystem development and aid faster penetration. An increase in the duty rates on compounded rubber from 10% to Rs. 25 (or) 30 per kg, whichever is less, is a challenge for tyre industry, which significantly depends on imported rubber,” Mr Dewan said.

As per the budget document, the basic custom duties have been increased on vehicles (including electric vehicles) imported in Semi-Knocked Down (SKD) form, as well as certain Completely Built Unit (CBU).

Mr Dewan said the government’s proposal to increase the duties on completely built units (CBUs) to 70% from 60% earlier is unlikely to have a material impact as most of the luxury cars are now assembled in India, barring the top-end variants. “Nonetheless, an increase in customs duty will further aim to promote domestic manufacturing going ahead,” he said.

Echoing similar views, Santosh Iyer, managing director & CEO, Mercedes-Benz India, said the change in basic custom duties will impact the pricing of “some of our select cars” like the S-Class Maybach and select CBUs like GLB and EQB, making them dearer. “However as we locally manufacture most of our models, this will not affect 95% of our portfolio,” Mr Iyer said.

He further said he expects the Union Budget 2023 to drive demand as it focuses on boosting consumption by increasing the disposable income of taxpayers, and an increased capital expenditure on infrastructure, particularly roads, should also create demand for the automotive sector.

Mr Iyer added, “The focus on sustainability in the budget is commendable and initiatives like extending customs duty exemption of capital goods and machinery to manufacture lithium-ion cells for EVs is a step in the right direction, as it will consistently drive green mobility in the country.”

Likewise, Naveen Soni, president at luxury car maker, Lexus India, said the government’s focus on replacing old government vehicles is a very welcome move and will provide a boost to the auto industry at large.

“In addition, the budget gives huge impetus to the EV industry, further reiterating the government’s steady push for fleet modernisation. We are hopeful that keeping in line with this, the policy initiatives will continue to accelerate the rapid adoption of green technologies…However, based on the increase in duties suggested in the Union Budget, we may have to adjust the prices of a few of our models.”

Gautam Khattar, principal – Price Waterhouse & Co LLP, said, while there has been a customs duty increase of 10% on imported vehicles (including electric vehicles), the effective increase is around 4% as the social welfare surcharge (SWS) which was earlier levied on such vehicles has been exempted. “Nevertheless, this should incentivise domestic vehicle manufacturing in a segment which is largely used by Indian consumers and is also climate friendly. How this increase impacts the ongoing FTA discussions, is however yet to be seen,” Mr Khattar said. 

(Edited by Anumeha Saxena)

Also Read: Budget 2023: Rs 2.40 lakh crore for Railways to boost expansion — highest outlay since 2013


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