Finance Minister Nirmala Sitharaman has announced in her 2022 Union Budget speech a couple of measures to boost the Indian automotive industry. These include steps such as announcing a new battery swap policy to encourage electric vehicle (EV) adoption and opening up defence research and development to private players for auto component development.
‘The Battery Swap Policy’
This is one of the major announcements made by the Minister of Finance in the Union Budget 2022. If implemented effectively, this can benefit the entire EV ecosystem in India. The policy is expected to drive the move towards fleet electrification for last-mile mobility for people and freight.
Under this battery swapping policy, the government will encourage private entities to participate in the process of setting up battery swapping stations and technologies. The impact of this policy will be limited to a few players in the industry. However, it is unlikely to bring major changes to India’s electric mobility space at a rapid pace.
EVs in public transport
Finance Minister Nirmala Sitharaman said that the government will encourage cleantech and electric vehicles into the public transport space. This will help more car companies produce electric buses and commercial vehicles. This strategy will also help the respective supply chain partners of these companies. This announcement will have no impact on some players, but not the entire automotive sector.
Opening R&D defence to private players
Automakers such as Tata Motors and Mahindra have previously worked in the defence sector through their respective wings. They produced vehicles for the Indian Army. Now, opening up the defence R&D for private players will help them with new revenue and growth for auto component makers. However, this would be limited to certain players only.
Benefits in Increase of financial budget for different sectors
The government has announced a ₹2.73 lakh crore MSP payment to boost the farming sector and ₹20k crore to aid infrastructure developments, along with additional benefits. This benefits the farming sector by improving the rural economy and in turn increasing demand for vehicles in rural markets. Vehicles such as two-wheelers, entry-level cars, SUVs as well as tractors, and small commercial vehicles.
As per the latest increase in allocation of budgets in the infrastructure sector, there will be a boom in business. This in turn will lead to a larger demand for Commercial Vehicles. The commercial vehicle sector was affected by the pandemic and will show signs of significant growth soon.
While Finance Minister has made some announcements to boost the auto industry at large in India. But not all the expectations of the automotive industry have been met. Almost all the main needs, such as the incentives for the adoption of the electric vehicle, the tax structure, and the structure of the revised tasks, have remained the same.
Additionally, no announcements have been made to help the automotive industry overcome rising entry costs. Hence, it is highly unlikely that the price of cars, bikes, and scooters will get cheaper. Conversely, continued pressure on automakers could lead to cost increases in the short to medium term.
What do you think about the Union budget? Could they have done something different to address the rising input cost? Let us know your thoughts in the comment section below.