Union Budget 2019: Electric vehicles get fillip; cess on oil to hit auto sector

Government, in its Economic Survey, also admitted that to achieve EV goals, India needs a robust charging infrastructure.

Published: 06th July 2019 02:24 AM  |   Last Updated: 06th July 2019 01:16 PM   |  A+A-

An electric vehicle replenishing charge at a charging stations. (Photo | EPS)

Express News Service

NEW DELHI: The Centre’s aggressive approach to promote production and adaptation of Electric Vehicles (EVs) found a prominent place in the Union Budget 2019-20. Finance Minister Nirmala Sitharaman addressed the much sought after demand of the industry by announcing reduction of GST rate on EVs from 12 per cent to 5 per cent. However, increased cost of diesel and petrol, as wells as marginal relief announced to revive the slowdown in auto sector has demotivated traditional auto players. 

To make EVs affordable for consumers, Sitharaman said, the government will provide additional income tax deduction of Rs 1.5 lakh on the interest paid on the loans taken to purchase EVs. Customs duty is also being exempted on select imports related to EVs to reduce the cost of vehicles. Stakeholders in the EV industry welcomed the announcement, and said it will help both consumers and manufacturers to go for EVs. 

Sohinder Gill, director general, Society of Manufacturers of Electric Vehicles, said the moves will help in creation of a local manufacturing base for EVs and encourage component manufacturers to invest in the sector. “Additionally, bringing down custom duty on lithium-ion cells to nil would further cut down the cost of batteries and help local battery manufacturers to scale-up the business,” Gill said. 

India plans to have very high penetration of EVs by 2030. Recently, the Centre spoke of doing away with petrol-run two-wheelers (upto 150 CC) by 2025. The Finance Minister also said the government has already approved Rs 10,000 crore for FAME-II scheme on April 1, 2019, to encourage faster adoption of EVs by providing right incentives and charging infrastructure.

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Also, support would be given to include solar batteries and set up the charging network. Government, in its Economic Survey, also admitted that to achieve EV goals, India needs a robust charging infrastructure.

As for traditional automakers, the budget had no direct reliefs even as sales have been on a declining spree since last year. “Increase in special additional excise duty and road and infrastructure cess by `2 per litre is a negative for the sector,” said Gaurav Karnik, Tax Leader for Automotive practice, EY India. 

The increase in custom duty of some auto parts has further dampened the spirit of automakers. “The hike in custom duty on automotive parts was not expected and it is not going to help create demand in the industry that is already facing continued strong macroeconomic headwinds, resulting in subdued consumer interest. Coupled with increased input costs due to fuel price hike, this could lead to an increase in price of our model range,” said Martin Schwenk, MD & CEO, Mercedes-Benz India.

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