Accelerating EV Revolution: Auto industry’s expectations from Budget 2025

As India readies for the Union Budget for the fiscal year 2025-26, set to be presented on February 1, 2025, the automobile industry stands at a pivotal juncture, filled with both anticipation and optimism. Over the past few years, the sector has experienced transformative shifts, propelled by evolving consumer preferences, groundbreaking technological advancements, and the government’s unwavering push toward sustainability.

With Finance Minister Nirmala Sitharaman’s highly anticipated budget announcement on the horizon, industry leaders are eagerly awaiting reforms that can catalyze growth, drive innovation, and align with India’s ambitious vision for a greener and more sustainable future. The upcoming budget is seen as a crucial milestone that could shape the trajectory of India’s automotive landscape, accelerating the transition to a low-carbon economy while fostering a thriving, competitive industry.

The 2024 Budget Allocation: A Snapshot

The Union Budget of 2024 emphasized supporting the automotive sector, particularly in the areas of Electric Vehicles (EVs) and green technologies. The government made significant strides in promoting sustainable mobility, with notable allocations toward the adoption of EVs. Key measures included tax breaks for EV manufacturers, lowering Goods and Services Tax (GST) on EVs, and the introduction of Production-Linked Incentive (PLI) schemes for manufacturing EV components. These initiatives helped boost domestic production and positioned India as a hub for green mobility solutions.

As per IBEF, the global EV market was estimated at approximately US$ 250 billion in 2021, and is projected to grow to US$ 1,318 billion by 2028. In line with these growth expectations, the Centre introduced the PM E-DRIVE scheme with a ₹10,900 crore (US$ 1.30 billion) budget, effective from October 1, 2024, to March 31, 2026. This initiative aims to boost the adoption of EVs, set up charging infrastructure, and foster the growth of an EV manufacturing ecosystem in India.

Current Environment

India is the world’s third-largest automobile market, with a dominant presence in the heavy vehicle category. The sector is undergoing a profound transformation, primarily driven by evolving consumer preferences, the need for sustainability, and evolving government policies. A notable shift is the growing preference for Electric Vehicles (EVs) over traditional internal combustion engine (ICE) vehicles, as consumers seek more sustainable and cost-effective modes of transportation.

Government incentives such as demand- and supply-side subsidies, along with lowered GST on the sale of EVs (5 percent), have further fueled this transition. These measures have made EVs more attractive compared to their ICE counterparts, which are taxed at a higher GST rate.

India has also reduced its import dependency, with an increased focus on domestic production, especially in the electric vehicle space. Policies have given a much-needed boost to indigenous manufacturing, contributing to India’s growing self-reliance (Aatmanirbhar Bharat) in the automobile sector.

Expectations for Budget 2025 in the Automobile Sector

As Budget 2025 approaches, the automotive sector has several key expectations that could significantly impact the industry’s growth, sustainability, and development:

Simplified Classification and GST Structure for Automobiles and Auto Components

The automobile sector faces significant challenges due to the complex classification of auto parts, components, and finished vehicles under the Harmonised System of Nomenclature (HSN). The expectation is for the government to simplify and standardize this structure, thereby reducing complexities, improving compliance, and eliminating the need for litigation. This would ultimately enhance the ease of doing business in India.

Reduction of GST on Hybrid Vehicles

Hybrid vehicles, which bridge the gap between conventional ICE vehicles and EVs, are currently taxed at the highest GST rate of 28%. Industry leaders hope that the government will consider reducing the GST rate on hybrid vehicles, making them more affordable for consumers and promoting their adoption. This would contribute to reducing carbon emissions and dependence on crude oil imports.

Simplified Refund Procedure for EV Manufacturers

EV manufacturers face challenges due to the inverted duty structure, where some components like lithium-ion batteries are taxed at a higher rate than the EVs themselves. This discrepancy leads to increased production costs, and the refund process for unused Input Tax Credit (ITC) can be complex and slow. Simplifying this process would alleviate financial strain on EV manufacturers, especially startups, and encourage local EV production.

Policy Recommendations

Expansion of PLI Schemes for EV Components

The upcoming budget is expected to emphasize the expansion of the Production-Linked Incentive (PLI) schemes for electric vehicle components and battery manufacturing. Such an expansion aligns with India’s vision to position itself as a global hub for EV production, accelerating the adoption of green mobility solutions.

Widening the Scope of PLI Scheme for Electric Passenger Cars

The government’s existing scheme to promote the manufacturing of electric passenger cars provides incentives to global manufacturers but limits benefits to vehicles valued over US$ 35,000. Expanding the scheme to include more affordable vehicles would encourage greater investment in domestic EV manufacturing and make EVs more accessible to a wider range of consumers.

Pre-Budget Expectations

Anagh Ojha, Co-founder & CTO, Urja Mobility:

“We are hopeful that the government will focus on simplifying GST structures and addressing inverted tax issues, particularly for batteries, which constitute nearly 50% of an EV’s total cost. A uniform GST rate of 5% across EVs, batteries, components, and charging infrastructure would reduce costs significantly and encourage growth in this space. Focused subsidies for battery-as-a-service (BaaS) models will also help make EVs more accessible.”

Dev Arora, Founder & CEO, ALT Mobility:

“As we approach Budget 2025, we expect policies that will drive inclusive growth in the EV industry. The inclusion of electric two-wheelers and three-wheelers under priority sector lending would support gig economy workers. GST refunds or interest for leasing companies could boost confidence in the sector, while carbon tax credits and clear tax frameworks for Battery-as-a-Service (BaaS) could accelerate EV adoption.”

Chandrasekar Krishnamurthy, Global Engineering Director, BorgWarner:

“The Indian EV industry is optimistic about Union Budget 2025, especially as it looks to meet the government’s 30% EV market share target by 2030. Key demands include a uniform 5% GST on EVs, batteries, and charging services, as well as continued support for initiatives like PLI and FAME schemes to reduce costs and strengthen local supply chains.”

Subhabrata Sengupta, Partner, Avalon Consulting:

“The EV sector is looking for stability in policy direction. The focus should be on the conversion of public transport to EVs, rather than just increasing the number of EVs on the road. The GST structure should be simplified, with a 5% GST across both batteries and EVs.”

Samkit Shah, Co-Founder, Jitendra Electric Vehicles:

“Transformational incentives for MSMEs are crucial to fostering innovation in the electric two-wheeler space. A nationwide battery swapping infrastructure and low-interest financing will encourage widespread adoption. Removing road taxes and registration charges will reduce EV ownership costs significantly.”

Avesh Memon, Founder & CEO, Rilox EV:

“The upcoming Budget 2025 should focus on revitalizing the EV sector by improving clarity around policies and offering subsidies to individual buyers and businesses. Strengthening the EV ecosystem by investing in domestic battery manufacturing and expanding the charging infrastructure is key.”

Nehal Gupta, Founder and Managing Director of Accelerated Money For U:

“India is at a pivotal moment in its transition to sustainable mobility. The upcoming budget can drive this change by making EVs more affordable through support under the PM E-drive scheme. Reducing GST on EVs, batteries, and charging infrastructure, along with offering low-interest EV loans, will encourage adoption, especially among small businesses and middle-class consumers. Fleet electrification for industries like ride-hailing and logistics is also crucial, as it can reduce emissions and costs. Additionally, offering incentives to retrofit existing vehicles with electric drivetrains can support the green transition, positioning India as a global leader in electric mobility.”

Himanshu Arya, Founder & CEO, Luxury Cart:

“The pre-owned car segment has seen a significant rise in demand and is growing faster than the new car market. While the government has supported new car sales through various incentives, the pre-owned sector hasn't been the focus. We hope for a possible reduction in taxes for pre-owned cars in the upcoming budget, which would make them more accessible to consumers. The sector also expects simplified financing options from banks, such as extended loan schemes and competitive interest rates on pre-owned vehicles. Additionally, we hope to see initiatives that encourage the growth of a more organized and transparent pre-owned car market, including incentives for refurbished EV batteries and EV resale programs.”

Kunal Sethi, CEO of The Detailing Mafia:

“In the upcoming budget, we expect crucial reforms that can unlock the full potential of the automotive sector. Simplification and rationalization of GST classifications for auto components is essential for creating a competitive environment. We also hope for greater transparency and accountability in the Production Linked Incentive (PLI) scheme, alongside policies that address the challenges facing the EV sector. These reforms would significantly enhance efficiency across the supply chain and help businesses operate more effectively.”

Gunjan Malhotra, Co-founder, Komaki Electric:

“India is progressing well toward EV adoption with transformative policies like FAME II and PM E-Drive. We are hopeful that the 2025 Budget will include measures such as expanding green financing options, lowering interest rates on EV loans, and investing in advanced battery technology research. Additionally, we hope for GST parity for EV batteries, reducing the rate from 18% to 5%, which would help lower the cost of electric vehicles and increase their accessibility for consumers.”

Budget 2025 presents an opportunity to address the challenges facing the Indian automotive sector, particularly the rapidly growing EV market. Industry leaders are hopeful that the government will prioritize policies that foster innovation, sustainability, and inclusivity, positioning India as a global leader in green mobility. The automotive sector’s future in India hinges on the continued evolution of supportive government policies and the expansion of sustainable solutions that meet the needs of consumers and businesses alike.