May tax incentives drive a surge in EV manufacturing? – Firstpost

India’s electrical automobile (EV) sector has witnessed exceptional progress over the previous few years, pushed by sturdy authorities insurance policies resembling FAME (Sooner Adoption and Manufacturing of Electrical Automobiles), EPMS (Electrical Mobility Promotion Scheme), PLI (Manufacturing Linked Incentive), and the PM eDrive Scheme. These initiatives have offered essential incentives for each customers and producers, accelerating EV adoption throughout the nation. Consequently, the EV market in India has achieved roughly 9% penetration within the two-wheeler and three-wheeler segments. Nonetheless, for India to maneuver from 9% to 50% or extra penetration and push home manufacturing, Funds 2025 should introduce stronger tax incentives and coverage measures to deal with key business challenges.

Addressing the GST imbalance: A vital reform

Some of the urgent issues within the EV business is the inverted GST construction. Presently, producers procure electrical parts at 12 per cent and 18 per cent GST and mechanical components at 28 per cent, whereas the ultimate automobile is taxed at 5 per cent to encourage adoption. This mismatch creates extreme working capital constraints, making it troublesome for producers to say enter tax credit successfully. Aligning the GST charges on parts with the ultimate product tax charge of 5% will considerably ease monetary pressure and encourage extra gamers to enter the market.

The growth of charging infrastructure should even be a essential precedence in Funds 2025. Presently, India has over 16,000 public charging stations – nonetheless considerably decrease than the estimated requirement of 1.3 million by 2030. Incentivising personal investments in charging networks, together with tax rebates for producers and different firms investing in EV infrastructure, can create a extra interesting ecosystem throughout the worth chain. Moreover, insurance policies that incentivise sustainability, be it by way of innovation in battery expertise or refurbishment and recycling, will drive effectivity and sustainability in the long term.

Strengthening home manufacturing

Whereas India’s EV business is progressing, a rising dependence on imported lithium-ion batteries, semiconductor chips, and energy electronics poses a risk to the sustainability of the home manufacturing ecosystem. Imports surged from Rs18,000 crore in FY23 to Rs24,000 crore in FY24, with a good portion sourced from different nations. This reliance not solely will increase prices but additionally exposes the business to provide chain disruptions. Safeguarding home producers and selling self-reliance beneath the ‘Aatmanirbhar Bharat’ imaginative and prescient would require the federal government to introduce insurance policies geared toward incentivising the native gamers. This might embody incentives for native battery manufacturing, R&D help for different battery applied sciences resembling sodium-ion and solid-state batteries, and tariff changes to encourage home manufacturing.

One other essential space requiring consideration is the affordability of EVs, notably within the two-wheeler segments, which constitutes roughly 60% of India’s EV market in 2024. Extending subsidies for electrical two-wheelers beneath the FAME III scheme, together with focused financing choices and decrease rates of interest for EV loans, will make EVs extra accessible to a broader client base.

The function of MSMEs within the EV provide chain can also be important, as they contribute to parts, batteries, and ancillary manufacturing. Offering simpler entry to credit score, PLI-linked incentives, and decrease tax charges for MSMEs engaged in EV manufacturing will improve native capability and job creation. Moreover, workforce upskilling applications tailor-made to EV expertise can guarantee a gradual provide of expert labour for the business.

A clear and inexperienced future

India’s transition to electrical mobility is a essential step in the direction of a cleaner, greener future. With the right combination of tax incentives, financing help, and coverage interventions, Funds 2025 has the potential to be a game-changer for the EV business. Addressing GST challenges, facilitating expertise partnerships, and offering monetary help to producers are prone to drive mass EV adoption and strengthen India’s place as a worldwide EV manufacturing hub. By strategically investing in EV insurance policies, India has the chance to steer the worldwide EV market, decreasing carbon emissions, making certain vitality safety, and creating hundreds of thousands of jobs. A self-reliant EV ecosystem is not going to solely improve India’s financial competitiveness but additionally contribute considerably to attaining its net-zero emissions goal by 2070.

The writer is Vice Chairman and Managing Director, Kinetic Engineering Ltd. Views expressed within the above piece are private and solely these of the writer. They don’t essentially replicate Firstpost’s views.