Budget 2025: What the automotive sector needs

Sweeping tax reforms and GST rebates appear to be the need of the hour for Auto inc.

With the automotive industry facing a slowdown in both passenger and commercial vehicle segments, all eyes are on the upcoming Union Budget 2025-2026 to provide some much-needed respite in the form of incentives and policy support. The industry wishlist primarily consists of two things: policies that will help boost EV adoption through incentives, infrastructure and skill development and policies that will help boost consumer spending overall.

Budget 2025: the PM e-Drive scheme, which will be implemented till 31st March, 2026, offers a subsidy of ₹5000/kWh capped at ₹10,000 per vehicle. (Representative Image)

At present the PM e-Drive scheme, which will be implemented till 31st March, 2026, offers a subsidy of ₹5000/kWh capped at ₹10,000 per vehicle. This means that those electric two-wheelers using advanced batteries can be purchased at a maximum rebate of ₹10,000. That is, if the vehicle has been registered in FY 2024-2025. Those who buy it in FY 2025-26 can utilise a maximum rebate of ₹5000. For many, the incentives are simply not substantial enough to give the EV sector the boost it needs. Particularly the E4W sector which receives no direct rebate at all. The PM e-Drive scheme, with a total outlay of ₹10,900 crore over two years, was designed to primarily subsidise two-wheelers, three-wheelers, hybrid ambulances and trucks.

Manufacturers, however, are seeking long-term policy consistency. According to Piyush Arora, MD & CEO of Skoda Auto Volkswagen India “The product development cycles are quite lengthy and require substantial investment. Simplifying the GST structure for different classes of vehicles and components is another task”.

Mercedes-Benz India MD Santosh Iyer points out that “reducing trade barriers and simplifying regulatory frameworks can further integrate India into the global supply chain while any additional measures that lower the cost of doing business, can result in attracting new investments”. “Continued push for BEV adoption by pursuing the existing incentives, infrastructure development and R&D initiatives will be crucial in accelerating India’s transition to green mobility” he adds.

Taxation reforms

At present, even though EVs attract aGST of 5%, components continue to be taxed at 15 to 28%. The Federation of Indian Chambers of Commerce and Industry Electric Vehicle Committee Chair Sulajja Firodia Motwani also spoke about reforming the GST rates for replacement batteries, as told to Business Standard. At present, the GST rate on EV battery cells is also at 18 per cent. Given that these reforms fall under the purview of the GST council, it is unlikely that the upcoming budget will introduce any sweeping reforms. However, taxation changes on batteries and charging services, according to a Reuters report from November 2024, claims that the relevant government authorities have been notified of the growing taxation concern on batteries for E4W and charging stations. The crucial need of the hour appears to be a uniform 5% GST across EVs, components, and charging infrastructure. As per the last budget speech, although battery cells continued to be imported at 18% GST, critical minerals required for EV battery manufacturing such as cobalt, lithium and copper received an import duty waiver. The waiver however hasn’t proven to be an impetus for growth as India continues to import all of its battery cells, with manufacturers having tied-up with giants like BYD, CATL, and Octillion Power Systems, whose Indian subsidiary Octillion Power Systems India Private Limited recently partnered-up with Tata Motors as an external battery supplier.

EV financing

Many experts have also highlighted that improved financing options are required, particularly for the commercial and e-two-wheeler segments. Although subscription plans such as the one offered by JSW MG Motors India have proven to be quite successful, other EV brands are yet to implement such a model. For the moment, most manufacturers of both e2W and e4W ask that interest rates on EV loans be reduced.

EV infrastructure

Manufacturers are also talking about the need to boost EV infrastructure, particularly in Tier-1 and Tier 2 cities. “Standardising charging systems across products and investing in the development of charging infrastructure in collaboration with petroleum and energy companies are critical steps to accelerate the adoption of electric vehicles,” says Nagesh Basavanahalli, the Vice Chairman of Greaves Cotton Limited. At present, the PM e-Drive scheme has earmarked the installation of 22,100 fast chargers for e-4Ws, 48,400 fast chargers for e-2W or 3Ws and 1800 fast chargers for e-buses.. According to a recent set of draft guidelines issued by the Centre, allocation of said public charging stations will see the prioritisation of cities with the highest EV adoption and highways with heavy traffic connecting major cities. Population, capital status, vehicle volume and freight will also be taken into account. Although the scheme didn’t highlight the minimum wattage required for the chargers, the new guidelines dictate that minimum charger capacities be set at 12 kW for two-wheelers and three-wheelers and 60 kW for four-wheelers. This is double of the average Tata Power DC charger which provides charge up to 30 kW per hour. The outlay for EV Public Charging Stations (EVPCS) currently stands at ₹2000 crore.