• In the year when billionaire Elon Musk-led Tesla is planning to enter India, the EV will be watching Finance Minister Nirmala Sitharaman’s Union Budget 2021 very closely.
  • India has been trying to get its strategy to push electric vehicles at least since 2015 but only with limited success.
  • In the February 2020 budget, Sitharaman had set a target of 2,600 new charging stations across India, but the progress is likely to have been set back by the COVID-19 lockdown.
  • The last budget also saw an increase in basic customs duty in a bid to protect the domestic players.
  • Check out the latest stories on Budget Insider.

2021 is expected to be the year Elon Musk brings the first Tesla Model-3 to India, 14 years after its first launch in the US. This is likely to intensify the race in the electric cars space as Indian car makers like Mahindra and Mahindra, Tata Motors and Maruti — as well as startups like Pravaig Dynamics and Tork Motors ⁠— prep the assault from the company owned by one of the world’s richest men.

Therefore, all eyes are now Finance Minister Nirmala Sitharaman and her upcoming budget speech on February 1. Electric car makers, as well as investors, are waiting to see if she will entice foreign investors like Musk by promoting electric vehicles. At the same time, if the policies will help domestic players compete at the same level.

India has been trying to get its strategy to push electric vehicles at least since the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) 2015 but only with limited success.

Even in last year’s budget, ₹693 crore was allocated for this programme. “It’s implementation has been ineffective and appeared unaligned with the government’s ambitious EV goals. And, the industry would keenly await some long term clarity and certainty in this area,” Suraj Ghosh, principal analyst at IHS Markit said.

Incentives for EVs under FAME 2

Segment Number of vehicles supported Approx battery size Incentives Max factory price
Registered 2-wheeler 1 million 2KWH ₹20,000 ₹1.5 lakh
Registered 3-wheeler 5,00,000 5KWH ₹50,000 ₹ 5 lakh
Registered 4-wheeler 35,000 15 KWH ₹ 1,50,000 ₹15 lakh
4-W strong hybrid vehicle 20,000 1.3KWH ₹13,000 ₹15 lakh
e- bus 7,090 250KWH ₹50 Lakh ₹2 crore

Source: FAME2

While Ghosh remains sceptical that the government would spend anything beyond what’s already allocated under FAME, he still sees some room for concessions “in terms of import duty of certain key components or bringing certain components under lower GST slab.”

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Electric vehicles need better infrastructure

A lot of people in India refrain from buying electric cars because there aren’t enough charging stations. Ghosh said the government has ambitious targets to increase the charging infrastructure and he added that “there are few drafts which would hopefully get materialized in the coming budget.”

In the February 2020 budget, Sitharaman had set a target of 2,600 new charging stations across India but the progress is likely to have been set back by the COVID-19 lockdown. As of the latest data, India had 650 places where people could charge the EVs.

Aside from these, relief of income tax or goods and services tax (GST) can further improve the demand, not just for EVs, but for cars as a whole.

The big question is will India sweeten its policy so much that the likes of Musk may want to ‘make in India’.

While the Narendra Modi government wants foreign investors to put their money in India, his recent policies have also emphasised on strengthening domestic companies. The Atmanirbhar (self reliant) programme is a case in point.

This dilemma is visible in the case of EVs too. Last year’s budget increased the basic customs duty on electric vehicles by 5% to 15%.

Electric vehicles: Basic custom duty hiked in Budget last year

Components Custom duty now Custom duty earlier
Completely built units of EVS 40% 25%
Electric two-wheelers 25% 15%
Electric buses 25% 15%
Electric trucks 25% 15%
semi knocked-down electric PV 30% 15%

According to Mitul Shah, Head of Research at Reliance Securities, the custom duty hike in the last budget was done to make electric cars more cost effective and encourage local manufacturing in the EV space. He believes that a ‘marginal hike’ in custom duties is likely in the upcoming budget.

SEE ALSO: India’s car dealers are hoping that Nirmala Sitharaman’s Budget 2021 brings buyers back — but rising prices may still be a deterrent
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