Batteries, EVs and more money in hand: How Auto Inc and the Indian car buyer benefits from the Budget 2024

For most of India’s ailing automotive sector clamouring for policies that promote economic growth and offer incentives, the Union Budget for FY 25-26 offers some respite. While no direct benefits were offered in the form of GST waivers (The restructuring of GST falls under the purview of the GST council) or battery-size-based rebates, the automotive sector, particularly the EV sector, has received some policy changes that should give a boost to battery manufacturing. While specific details are awaited, here are a few ways in which the Union Budget 2025 will help support the EV sector and boost demand.

Battery Manufacturing

As the world’s fastest-growing major economy, India aims to increase its level of resource independence when it comes to critical minerals for EV battery manufacturing and recycling. As such, Finance Minister Nirmala Sitharaman has announced a “National Manufacturing Mission” that focuses on cleantech manufacturing under India’s “Make In India” programme. According to Finance Minister Nirmala Sitharaman, “This will aim to improve domestic value addition and build our ecosystem for solar PV cells, EV batteries, motors and controllers, electrolysers, wind turbines, very high voltage transmission equipment, and grid-scale batteries."

The budget has offered a custom duty exemption on 35 capital goods required to manufacture EV batteries while also announcing support or manufacturing. In addition, the central government will launch a policy for the recovery of critical minerals and the tailings or by-products of mining. Given India’s inherent resource scarcity when it comes to critical minerals like lithium and cobalt, the new budget aims to increase resource independence, not only in the form of direct custom duty waivers but also through the scrappage of minerals, which, once refined domestically, will add to the level of battery material required to boost domestic EV manufacturing.

Furthermore, the addition of 10,000 PM Research Fellowships will support technological research at IITs and IISCs, along with a new Centre of Excellence in AI for education with a ₹500 outlay, which is expected to help increase overall core competence in research and manufacturing of EV technology. According to Nimit Aggarwal, Founder and Managing Director of EcoX, a digital marketplace offering plastic waste management services, “the announcement of Deep Tech Fund to support next-gen startups will drive innovation in sustainable technologies, including advanced recycling solutions and circular economy initiatives”.

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What does this mean for the EV sector?

At the very outset, this does not spell any increased subsidy being offered on the purchasing price of EVs or e2w. However, when put in place, the policy will help bring down the overall cost of the battery by an estimated 10 per cent, according to Nitin Gupta, CEO of Attero Recycling.

Essentially, if India is to boost the EV sector, it will need to rely on EV battery refining and recycling in a major way as the resources required for scalable EV battery manufacturing remain scarce.

According to Gupta, the policy helps “reduce the input cost and basically encourage more investment in the refining of critical minerals in the country, in which Attero is a leader in the space.” “Improved refining capacity basically means two things: a more robust supply chain which is getting covered by zero duty on scrap imports, plus critical mineral extraction from mine tailings which also are an input to the refining infrastructure” he adds.

“The second thing, in terms of the PLI scheme or CapEx subsidy on the expansion of critical minerals extraction, gives the advantage of helping us increase capacity much better from a financial perspective. So both capacity expansion and raw material is taken care of by these three policies put together.”

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Consumption boost

The more direct boost to consumption comes in the form of the revised income tax brackets. Under the new tax regime, consumer spending is likely to receive a boost as the middle class through a revised tax bracket exempting those who earn ₹12 lakh annually ( ₹12.75 for salaried individuals) from paying direct income tax. This is a significantly higher bracket than last year’s ₹7 lakh. In addition to this, the enhanced credit availability and increased loan limits should also help boost spending.

MSME

Given how large a chunk of MSMEs (Micro, Small and Medium Enterprises) in India belong to the auto component manufacturing sector, the doubling of the credit guarantee cover ( ₹10 crore from the previous ₹5 crore) along with a revised credit card limit for MSMEs (with a target of 10 lakh enterprises every year) means there is plenty of room for growth. In addition to this policies have been set in order to boost employment, boosting the overall sentiment around the economy.