Union Budget 2025: Auto sector seeks EV incentives, tax reforms, and rural growth boost

By Vivek Dubey

Incentives for EV Supply Chain: The auto industry expects the government to introduce direct incentives or schemes to strengthen the electric vehicle (EV) supply chain, particularly in battery manufacturing. These measures aim to increase domestic value addition in battery production to 50-60%, reducing dependence on imports.

FAME-III Subsidy Extension: Industry stakeholders hope to extend the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-III) subsidy beyond its current deadline of March 2025. Extending this subsidy is considered vital for maintaining the momentum in EV adoption, particularly as India transitions towards sustainable mobility.

Focus on Charging and Storage: Investments in charging infrastructure and energy storage systems are being strongly advocated. Stakeholders also stress the importance of increased government support for research and development in clean energy, green mobility, and semiconductor technologies.

Need for Commercial EV Financing: Experts highlight the need for improved financing options for commercial electric vehicles. They argue that better access to financing would accelerate the adoption of EVs, particularly in government fleets and four-wheeler categories.

Rural Development as a Growth Driver: Rural development schemes and subsidies are expected to play a critical role in the sector. Increased focus on these areas could benefit manufacturers of tractors, entry-level two-wheelers, and small passenger vehicles.

Tax Reforms for Consumption: Revisions to the tax structure are another key expectation. Industry leaders believe that favourable tax policies aimed at stimulating consumption spending could drive growth across the entire automobile sector.

Infrastructure Investments Crucial: The government’s ongoing infrastructure projects have a direct impact on the auto sector. With Rs 11.11 trillion allocated in the last budget for roads, railways, and ports, stakeholders hope for increased funding and faster execution of such projects. This is particularly crucial as national highway construction has slowed, affecting the demand for commercial vehicles and their components.

Simplified GST for EVs: Simplifying the Goods and Services Tax (GST) structure is seen as a critical step for the EV market. "Simplifying the GST structure with a uniform 5 percent tax across EVs, components, and charging infrastructure is essential to reducing costs and fostering growth," said Dinkar Agrawal, Founder, CTO, and COO of Oben Electric.

Hybrid Vehicles and Affordable EVs: Stakeholders suggest lowering the GST on hybrid vehicles, which are currently taxed at 28%, to make them a feasible option as the EV ecosystem develops. Similarly, reducing GST rates on entry-level two-wheelers could help consumers in Tier-II and Tier-III cities, where public transportation options are often inadequate.