The forthcoming Union Budget for the fiscal year 2025-26 is anticipated to place a strong emphasis on eco-friendliness, innovation, and employment generation. Budget 2025: India’s automotive sector has rapidly transformed into a global powerhouse, securing its position as the world’s third-largest market. This transformation is fuelled by evolving consumer preferences, increasing demand for sustainable mobility, and the Indian government’s forward-thinking policies. Initiatives like the Production Linked Incentive (PLI) for Automobiles, FAME-II, and the recent PM E-DRIVE and SMEC schemes have catalysed this growth. With INR 20,715 crore invested and INR 10,472 crore incremental sales achieved under the PLI scheme alone, the sector is on the point of a major leap forward. The PM E-DRIVE Scheme, which focuses on electrifying public transport and bolstering EV infrastructure, has already disbursed INR 332 crore, significantly contributing to India’s push for green mobility.
The forthcoming Union Budget for the fiscal year 2025-26 is anticipated to place a strong emphasis on eco-friendliness, innovation, and employment generation. The budget is expected to earmark funds for promoting manufacture of EVs in India by way of multiple schemes like Auto PLI, PM E-DRIVE Scheme and The Scheme to Promote Manufacturing of Electric Passenger Cars (SMEC), etc., to attract both domestic and international investment in the country.
The Author has shared his views on some of the key expectations from this Union Budget for the auto sector in ensuing paragraphs.
Protecting Domestic Manufacturing: Curbing Import Reliance and Promoting Self-Reliance
While India’s EV industry is progressing, a growing dependence on imported lithium-ion cells poses a threat to the sustainability of the domestic manufacturing ecosystem. Imports surged from INR 18,000 crore in FY23 to INR 24,000 crore in FY24, with a significant portion sourced from China. To safeguard domestic manufacturers and promote self-reliance under the 'Aatmanirbhar Bharat' vision, the government could introduce policies aimed at curbing excessive reliance on imports. This could include targeted incentives to boost local production capacities, as well as infrastructure development to support domestic manufacturers.
To make manufacturing more cost-effective and to elevate the sector's competitiveness, the budget could offer tax alleviations, such as the rationalization of Customs duties on EVs and automotive components and battery components. Further to push domestic manufacturing in India and to maximise benefits of schemes like Auto PLI which is primarily meant for import substitution, the Union Budget could increase custom duty on certain EV components for which the country provides conducive environment to manufacture in India.
Strengthening EV Infrastructure: Policies, Charging Stations, and Battery Recycling
For India to meet its EV adoption goals, the government must continue to focus on building strong charging infrastructure. The PM E-Drive scheme, which has replaced earlier subsidy programs, is a critical step in addressing this infrastructure gap. However, more efforts are needed, such as standardizing charger connectors and increasing the number of public charging stations through government partnerships and renewable energy integration. Also, efforts are needed for the enhancement of EV infrastructure, particularly in tier 2 and tier 3 cities, and there is a need to introduce further incentives for private entities to establish EV charging stations and associated infrastructure.
Also, the Ministry of Heavy Industries is in the process of identifying locally-produced battery components that need financial support, and is in the process of finalising a scheme giving incentives for battery component manufacturing to support an expanding electric vehicle industry and meet growing energy storage demand. This budget ought to provide some allocation and clarity on the same to enable the industry prioritize manufacturing of such components.
In addition, economic incentives like tax rebates (such as the introduction of income tax deductions for buyers of EV or Hybrid vehicles) when coupled with road tax exemptions would further drive adoption of green mobility in India.
Policies focused on battery recycling and waste management are essential for ensuring the long-term sustainability of EVs. Supporting innovative ownership models such as battery-as-a-service or battery leasing would also help reduce the upfront costs of EVs, making them more affordable to a broader range of consumers.
GST Challenges
Although GST council is the decision maker for all the matters relating to GST, however the industry requests some respite on providing a solution on inverted duty structure for EV in GST by way of smoothening the refund process or harmonization of GST rate. Further, GST rate rationalisation for hybrid vehicles is also needed to enable smooth transition to green mobility in the country. These pointers if recommended by the Union Finance Minister being head of the GST council, can play a crucial role in promoting the sector and contributing towards Atmanirbhar Bharat.
Conclusion: Shaping India’s Auto Future
India’s automotive sector is at a critical juncture. The vision of a self-reliant, sustainable, and competitive industry is within reach, but sustained government support is crucial. However, as the industry moves forward, there is a critical need for sustained policy support to maintain this momentum. As we approach the Union Budget 2025-26, all eyes are on the government to introduce measures that will help solidify India’s position as a leader in sustainable automotive innovation. The Author believes that the same can be achieved by weaving together these recommendations with a pledge to generate employment and support for Micro, Small, and Medium Enterprises (MSMEs).
