Yesterday, Finance Minister Nirmala Sitharaman announced the Union Budget 2022, and in it, there were a couple of essential points included in order to give a boost to the Indian Auto Industry. In short, there is not much relief as we had expected, which is a downer, but there are highlights in other fields like EV, rural development and infrastructure, which we will elaborate on below. So here is how the Union Budget will impact the Automotive Sector.
Battery Swapping Policy
One of the major announcements in the Union Budget that will impact the Automotive Sector has to be the Battery Swapping Policy. If it is successfully implemented, this policy will be of great advantage for the whole EV ecosystem in India. This policy helps not only the EV manufacturers but also the EV charging infrastructure companies which should see more people imbibing EVs. It is also expected to electrify fleets for last-mile mobility. This policy implies that the government will encourage private manufacturers to take part in the process of setting up battery-swapping stations and improvising the technology.
Read here if you want to know why your next car should be an EV.
EVs in Public Transport
Finance Minister Nirmala Sitharaman said that the government encourages clean technology and electrifying vehicles in the public transport segment. This will help the manufacturers that produce electric buses and commercial vehicles. And of course, this strategy will also help those companies’ respective supply chain partners as well. But we need to keep in mind that this will impact certain manufacturers only and not the whole automotive sector. This is understandable since not all of them manufacture electric buses and commercial vehicles. We are sure this is one among the Union Budget announcements that will impact the Automotive Sector.
Vehicles Will Not Get Cheaper
Not all is good news, though, because although there were some announcements to boost the auto industry, not all the expectations have been met. The most important demands like incentives for new EV adoption, tax cut and revised duty structure have not been changed. Even more disappointing is the fact that there was no announcement to help the industry overcome the rising input costs. Hence there will be no reduction in prices of any vehicles and considering the fact that we will be paying more for the same vehicle, it is not a good thing.
Opening Defence R&D to Private Manufacturers
The announcement of opening up the defence R&D sector to private manufacturers could open up a new growth segment for auto component companies in India. We have car manufacturers such as Tata Motors and Mahindra who have been already working in the defence sector through their respective wings. They have for a long time been making vehicles for the Indian armed forces. Now, opening up the defence R&D for private manufacturers will help them with new revenue and growth area. However, this would be limited to certain manufacturers and segments only.
MSP Payment to Boost Rural Vehicle Demand
Another critical announcement on how the Union Budget will impact the Automotive Sector is that the government has announced a ₹2.73 lakh crore MSP payment and other benefits to aid the farming sector. This will help improve the rural economic growth and ultimately improve demand for vehicles in rural markets. These rural markets contribute largely to the sales of two-wheelers, entry-level cars and SUVs, along with small commercial vehicles and tractors. This comes as a breath of fresh air, especially after the second wave of COVID-19, which impacted a lot on the rural sector.
Boost to Infrastructure Projects
As per the Union Budget, the Finance Minister announced the allocation of ₹20,000 crores for infrastructure projects throughout the country. This will boost demand for commercial vehicles as new projects subsequently create demand for new Commercial Vehicles. The announcement of an expansion of national highways across India by 25,000 km in 2022-23 comes as a relief to the entire commercial vehicle sector. The commercial vehicle sector was hit hard by the pandemic lockdowns and has recently started showing signs of revival.
These are the important announcements on how the Union Budget will impact the Automotive Sector, and although we expected more, it is not too shabby either. A decrease in taxes on raw materials in order to reduce inflation and higher incentives for EV adoption would have made a lot of people happy, including us, but it looks like we have to wait another year for that to be expected. Let us know what you think of the budget in the comment section.