There is Not a Lot for the EV Sector in Budget 2020

Demand incentives of ₹6 billion to be disbursed in 2020-21


Budget 2020 has failed to meet the expectations of the electric vehicle (EV) segment of the country. The segment’s stakeholders were expecting more measures from the government to promote electric mobility in cities.

Despite the government’s constant stress on a cleaner and greener environment, the Union Budget had very little to put smiles on the faces of EV enthusiasts, and not many incentives were announced to drive the demand of EVs.

As per the Union Budget announcement, imported EVs are going to get costlier with the government increasing the customs duty on various kinds of such vehicles as the government pushes for local production. The government has allocated ₹6.93 billion (~$96.8 million) for the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India (FAME-India) program for the financial year 2020-21.

Union Budget 2020-2021 - Budget Outlay for EV

To promote easy adoption of EVs, the government has increased the number of EVs to be supported for the fiscal year 2020-21 through demand incentives for electric buses to 5,000 as compared to 1,650 announced in the last budget. The demand incentives for electric four-wheelers has been increased to 3,000 as compared to 1,650 in the previous budget. Demand incentives on electric three-wheelers has been decreased to 15,000 from 16,500, and demand incentives on electric two-wheelers has been increased to 40,000 from 33,000.

As per the budget announcements, the target for the number of charging stations to be put up on highways has been set at 2,600. The target share EVs in the number of new vehicles to be sold for the financial year 2020-21 has been set at 0.30%, and the employment generation in the EV sector for the fiscal year 2020-21 has been set at 1,50,000.

Development of Automobile Industry

Speaking on the budget announcements, Maxson Lewis, Managing Director, Magenta Power, said, “There is absolutely nothing for the EV sector in the budget. There is no mention of the plans for the existing initiatives, such as the FAME program. This is understandable as the government cannot be seen pushing a new disruptive technology on the automotive sector which is already reeling under the burden of BS-VI and the heavy investments that are involved. Indirectly, however, the budget has some positive support for the startups. Startups will drive the fledgling EV industry and the multipronged approach will favor the startups in the EV space.”

Finance Minister Nirmala Sitharaman in her budget speech also proposed to increase the basic customs duty (BCD) on imports of commercially built units (CBUs) of electric bus and trucks from 25% to 40% and semi-knocked down (SKD) units of electric bus, trucks, and two-wheelers from 15% to 25%. The SKD units of electric passenger vehicles and three-wheelers saw the BCD being doubled from 15% to 30%. The government increased the BCD on imports of completely knocked down (CKD) units of electric passenger vehicles, bus and trucks, three-wheelers, and two-wheelers from 10% to 15%. The revised BCD will be into effect from April 01, 2020.

Changes in Customs Duty EV

“On the issue of the BCD, the intent is good. A decade ago, the same thing happened with the solar sector, and the neighboring countries who developed large manufacturing capacities were essentially dumping goods which hampered the domestic manufacturing capabilities in solar which have now slumped to an assembly line at best in India. The government didn’t want to repeat that same mistake and hence the move to push for EV manufacturing to be developed within the country. However, the messaging could have been better,” he added.

The proposed hike in customs duty on completely and semi-knocked down kits and CBUs is in line with the phased manufacturing plan outlined by the Department of Heavy Industry (DHI) in 2019 and will serve as a blow to those manufacturers assembling imported kits from China.

Speaking to Mercom India, Omprakash Upadhyay from Tata AutoComp said, “The announcements in the budget are going to promote the Make in India initiative, and the government is promoting localization which is a good thing. The government has taken many positive steps in the last few years which shows the positive intent of the government. One thing that the government can do is that it can promote a common protocol for e-buses. Now, all the manufacturers are promoting their own protocols. The government should also look at tax exemptions on semiconductor devices that are used in EVs and imported from other countries. Overall, we’re happy with the budget.”

There is still a shortage of proper infrastructure for developing and manufacturing electric vehicles in India, and most manufacturers continue to import essential components such as lithium-ion batteries, electric motors, and other parts from other countries.

“We welcome the steps to boost electronics manufacturing. Power electronics and electronic manufacturing is an essential part of advanced storage and EV ecosystem. We hope that this new plan can boost component manufacturing in India and reduce reliance on imports for Indian companies,” said Rahul Walawalkar, President, India Energy Storage Alliance (IESA).

“IESA was given the push under NITI Aayog’s mission National Mission on Transformative Mobility and Battery Storage for indigenous manufacturing. We were anticipating a clear allocation of resources for accelerating e-mobility and setting up of giga factories, which were missing in the budget. We hope the finance ministry provides clarification on this,” he added.

The government has emphasized the need to promote the manufacturing and use of EVs in the country, and over the last few years, many states have come up with policies to promote wider adoption of EVs. The EV sector in India saw a lot of positive moves in 2019, with the launch of FAME India – II, introduction of tax exemptions for buyers, subsidies for manufactures, Goods, and Tax (GST) cuts, and duty imposition on imports to push domestic production.

Recently, the Department of Heavy Industries (DHI) approved 2,636 electric vehicle charging stations in 62 cities across 24 states and union territories under the second phase of the program. According to the government’s statement, nearly 106 proposals were received from the public and private entities for the deployment of approximately 7,000 EV charging stations.

Earlier, the Ministry of Heavy Industries and Public Enterprises had released a revised list of parts that are to be indigenized under the Phased Manufacturing Program (PMP), which falls under phase II of the FAME program. The list consists of 20 eligible components that are used in electric vehicles across the two, three, and four-wheeled segments, which will be covered under the PMP.