What Does The Union Budget 2025 Have In Store For The Automotive Sector?

The Union Budget 2025 presented by the Finance Minister of India, Nirmala Sitharaman, was centralised around empowering the Indian middle class. While the income tax redemption under the new regime made it to the headlines, there was something for the ailing automotive segment – a sector that has seen rapid growth in recent years and has been yearning for certain reforms to perform even better. 

While the technology sector has been given a substantial emphasis in the latest Union Budget presentation, the automotive sector has been given little yet crucial exemptions that could steer the industry’s growth in a new direction. The Budget 2025 for the automotive sector was all about electric vehicles and the local production of several crucial components.

Sadly, there was nothing in store for internal combustion engine vehicles, a category that majorly drives the growth in the automotive industry. Nonetheless, the EV category is likely to benefit greatly from all the announcements as part of the new announcements of Budget 2025. 

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Union Budget 2025: How does the EV industry benefit?

The government wants India to become the next hub for electric vehicle manufacturing and hence, it has made certain exemptions to encourage local production of EV components – most crucially, the lithium-ion battery. 

- Firstly, the government has exempted customs duty on 35 capital goods for EV battery manufacturing. Batteries are easily the most crucial component in electric vehicles and encouraging its local production is going to give India a strategic advantage in the global EV race. With no custom duty, it is expected that more international players will set up EV battery manufacturing plants in India, thus strengthening India’s presence in the EV space. Additionally, local production of the battery is expected to drive down the costs of electric vehicles, thus ensuring rapid adoption of these clean energy vehicles. 

- The Finance Minister has also proposed zero customs duty on lithium-ion battery scrapping and waste management. 

- Next, the government also wants to encourage support for local manufacturing of motors, controllers and other key components in electric vehicles. This will ensure an entire ecosystem of EV component production locally, thus allowing for tax rebates as well as an increase in employment opportunities in the automotive sector. 

- The NDA government is also furthering the integration of EV manufacturing with India’s Clean Tech manufacturing program. This will allow local players to focus on improving the core technology, with special emphasis on battery recycling and an improved charging infrastructure. The government will also ensure a greater focus on encouraging the local research and development of high-density batteries as well as exploring future enhancements to make EVs widely acceptable. 

Will the new EV manufacturing incentives help Tesla and global EV brands?

While Tesla’s delayed entry into the Indian market might be solely down to higher import duties for CBU, the incentivised customs duty should encourage other players to set up local manufacturing plants and kickstart a cost-effective ecosystem of EV manufacturing in India. Key players in the EV segment, like MG Motors and Tata Motors, can now encourage international component suppliers to set up battery as well as other EV component manufacturing facilities in India. 

This should not only help in enhancing the employment opportunities in the sector but also help drive down overall costs. Currently, EVs command a premium over their gasoline-powered counterparts due to a considerable amount of imports from China and other foreign countries. A lower acquisition, as well as maintenance cost, should encourage wider adoption of electric vehicles in India. 

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