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Union Budget 2023 Automotive Sector Highlights

Union Budget 2023 Automotive Sector Highlights


The Union Budget 2023 is here, and it has made several announcements regarding the automotive sector.

This year’s budget is growth-oriented and will encourage sustainable mobility practices in India.  And if you’re planning to buy a car or an EV of your own, you’re in luck. The personal income tax exemption announcements have been well-received by the salaried population, because they will presumably leave more disposable income to spend on cars.

The new budget talks about several initiatives to promote domestic manufacturing, green mobility, increased consumer demand, producing electric vehicles, hydrogen fuel, and other evolving technology mix. In this article, we’ll look at its key highlights for the automotive industry.

#1 Electric vehicles

As per the Union Budget of 2023, customs duties on imports of goods used in producing lithium-ion cells have been reduced from 21% to 13%. Lithium-ion cells are the key component in EV batteries, so the reduction is expected to encourage local manufacturing, lower EV prices, and boost sales for car manufacturers.

It also aligns with the government’s vision of reducing carbon emissions and promoting green mobility.

#2 Use of Hydrogen

The National Hydrogen Mission, which promotes hydrogen as a clean energy source, will receive Rs. 19,700 crores in the budget.

By 2030, the government wants to increase its annual hydrogen production capacity to five million metric tonnes. Reducing India’s dependence on fossil fuels and lowering greenhouse gas emissions is the aim of the National Hydrogen Mission. The government plans to achieve this by setting up green hydrogen plants and encouraging research and development in the sector. The government has also invested Rs. 35,000 crores in the energy transition to attain the goal of net zero carbon emissions by 2070.

#3 Scrappage policy

As part of the Union Budget 2023, the government introduced a voluntary vehicle scrappage policy.

Under this policy, the government will incentivise the old vehicle owners to scrap and replace them. By doing so, the government aims to increase demand for upcoming cars while lowering the country’s pollution levels and boosting sales for car companies.

In addition, the scrappage policy will benefit automakers, lenders, and the general public. The Finance Minister also stated that the government would replace only polluting vehicles. Additionally, state government vehicle scrapping will receive financial support, and central government vehicle scrapping will receive direct funding.

#4 Promotion of MSMEs

MSMEs (Micro, Small, and Medium Enterprises) in the automobile industry will receive support, according to the Union Budget 2023. The government has proposed a dedicated fund to support the growth of MSMEs in the automotive sector.

The fund would provide financial assistance to MSMEs to develop cutting-edge technologies and improve existing ones. Consequently, this will increase MSMEs’ growth and competitiveness in the automotive industry.

#5 Research and development

The automotive sector was hoping for tax incentives because new and emerging technologies require a lot of research and development. However, the government has yet to announce any such incentives for the automobile industry.

#6 Greater spending on road infrastructure

According to the Finance Minister, Rs. 75,000 crores will be invested in 100 crucial transportation infrastructure projects. These projects aim for efficient last and first-mile connectivity for ports, coal, steel, fertiliser, and food and grain sectors.

This increase in spending on the road’s infrastructure hopes to increase demand for commercial vehicles and improve the efficiency of the logistics industry. Long-term, the decision will be advantageous to the automotive sector.

#7 Income tax rebate

Finance Minister Nirmala Sitharaman announced an increase in the maximum refund amount under Section 87(A) of the ITA from Rs. 5 lakhs to Rs. 7 lakhs for those who opt for the new tax system.

Therefore, anyone making up to Rs. 7 lakh is exempt from paying income tax. As a result, demand for personal automobiles and two-wheelers might increase, making sales better for automobile sector companies.

#8 GST

The government continues to tax hybrid vehicles at 43% as luxury goods. India is trying to reduce carbon emissions and promote green mobility, for which hybrid cars are optimal as they provide higher mileage.

In summary

The Union Budget 2023 has implemented many positive changes to assist India’s car industry, essential to expanding the country’s economy.

Enacting a voluntary vehicle scrappage programme and lowering import taxes on supplies used to make lithium-ion batteries will probably increase interest in electric cars and newer models. Furthermore, the National Hydrogen Mission, which has received substantial funding, and the proposed fund for MSMEs in the automotive sector will promote the development of cutting-edge technologies and clean energy sources, supporting sustainable growth.

Experts suggest tax incentives for R&D and a uniform GST for all auto parts for the long-term growth of the automotive industry in India. Despite this, the Union Budget 2023 represents a positive development for the Indian automotive industry while aiding the environment and the business sector. These steps must speed up India’s transition to a more sustainable and effective transportation system.

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