The Union Budget for the year 2023-24 will be presented by Finance Minister Nirmala Sitharaman in the Parliament on February 1, the last full Budget of the Modi government before the 2024 general elections. The budget, this year, is likely to be growth-oriented with a focus on capex, manufacturing, infrastructure, and rural economy.
Different sectors have different expectations from the budget, let's see what the different experts expect for the auto space.
Auto Industry is one the largest industries contributing more than 6 percent to India’s GDP and generating huge direct and indirect employment. Most analysts don't see major announcements in the space, however, they expect some PLI-like incentives, some relief in GST (especially for electric vehicles), and further smoothening in the manufacturing process.
1) Vinit Bolinjkar - Head of Research - Ventura Securities expects relief on the GST front for EV manufacturers. GST on EVs is 5 percent, however, GST on EV parts such as lithium-ion batteries and other ancillaries is 18-28 percent, resulting in an inverted duty structure that restricts working capital, he added.
2) Nirvi Ashar - Fundamental Analyst, Religare Broking said, "The expectations for the budget are high that the government may provide some policies to promote exports; also some allocation towards EVs and related infrastructure may be announced. In addition, focus on PLI schemes, high allocation towards infrastructure and welfare programs would bring some relief for rural consumers income."
3) Ram Kalyan Medury- A SEBI-registered investment advisory firm expects an extension of the PLI scheme for auto and auto component manufacturers, particularly for organizations with export potential. "We are likely to see a further push and incentives for EV and EV component manufacturers, with the aim of making India a manufacturing hub in this space. Charging infrastructure is likely to get further incentivized. R&D for Green technologies to support net zero carbon emissions might get a budget boost," he noted. Although the industry expects GST rationalization, Medury does not see that happening in this budget.
4) Saji John, Research analyst at Geojit Financial Services sees the government's primary priority to be expanding the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) II and PLI schemes and increasing the scope for start-ups and MSME. A path for alternative fuels and a reduction in duty for EV-electronic spare parts will be watched, he added. The industry anticipates enhanced support for battery manufacturing and charging infrastructure in India, and for that, he expects a further reduction in import duties on raw materials and capex subsidiaries. Furthermore, middle-class alleviation and attempts to increase rural participation will be monitored, noted John.
5) Aniket Mhatre, Institutional Research Analyst, HDFC Securities does not expect any direct sops in this Budget for the Sector. However, this budget is likely to be positive for rural India. Also, one expects Government's focus on infra push to continue. Both these factors augur well for the sector outlook for next year, Mhartre pointed out. There is likely to be some clarity on the FAME2 subsidy as it is nearing full utilisation. We would also expect some sops to be announced for hybrid vehicles, he said.
6) Anil Rego- Founder and Fund Manager at Right Horizons PMS noted that the Auto industry is expected to benefit from PLI-like incentives and further smoothening in the manufacturing process. Over 80 percent of vehicle sales in India come from Two-wheelers and three-wheelers, he informed adding that the EV penetration is also expected to be led by these segments.
"The personal segment accounts for most of the sales however for faster adoption and manufacturing of electric vehicles (FAME) subsidy support is available only for commercial PVs, making EVs less viable in the personal segment. With FAME II set to expire on March 31, 2024, we expect the subsidies for EVs under the FAME II scheme to be extended and also, for light to heavy commercial vehicles to be included, which will promote electric mobility," he predicted.
He further added that the Advanced Chemistry Cell (ACC) PLI is supporting manufacturers of ACC batteries, however, due to a lack of infrastructure and support for manufacturers of components of batteries and he expects incentives for ACC active material manufacturers to further aid in the development of the EV sector.
7) Aditya Welekar, Senior Research Analyst - Metals, Mining, and Auto, Axis Securities believes that relief in the Budget could be limited to EVs, against ICE engine vehicles, with more attention towards boosting the electric charging Infrastructure in the country. However, he noted that the CV and tractor segments, with entry-level motorcycles, could be the indirect beneficiary if the Budget focuses on infrastructure growth, irrigation, and the rural economy. From the Budget, he expects the following:
a) An extension in the timeline of FAME-II subsidy beyond March 2024. Also, extension to categories like MHCV and LCV shall promote a faster adoption of EVs.
b) Timeline Extension of interest deduction, under section 80EEB of Rs. 1.5 lakh (IT Act 1969) on loan to purchase electric vehicles (EV) up to March 2025 from March 2023 will aid in higher demand for EV-2Ws and EV-4Ws in urban areas.
c) The impetus to charging infrastructure and energy storage systems, government support in R&D for clean energy, green mobility, and semiconductors will help the auto sector. Also, some incentives for building academic or skill training courses around EVs can happen.
d) Being the last Budget before general elections in CY24 key focus will be a boost to rural consumption, which shall support discretionary spending benefitting rural-focused 2Ws and entry-level 4W OEMs (along with auto ancillary companies supplying to such OEMs). (Hero Motors, Maruti could benefit from the rural focus, and Ashok Leyland could benefit from infrastructure impetus).