In this article, OMI Foundation uncovers the Union Budget 2024-25 from the perspective of how it is envisioned to shape the electric vehicle (EV) sector and the overall clean mobility ecosystem. OMI Foundation believes that an EV-Ready India can serve as a vital cog in the steady progress towards Viksit Bharat.
- The budget mentions bringing out a policy document on energy transition pathways that balances the imperatives of employment, growth, and environmental sustainability. The energy mix dynamics, going forward, as per the budget will focus on bringing a balance between the traditional and upcoming forms of energy including renewable and nuclear. Promoting pumped storage projects, rooftop solar plants, small nuclear reactors are some of the initiatives in this direction.?
- The budget emphasises the development of a taxonomy for climate finance to enhance the availability of capital for climate adaptation and mitigation. India’s Economic Survey (2024) also calls out for the need for tailored approaches to climate financing in India, including engagements with various funds, multilateral development banks (MDBs), and blended finance tools. This is one area which is going to witness strong momentum in India’s transition to cleaner sources of energy including the electric mobility sector.
- The announcement of setting up a Critical Mineral Mission and mandating technology development, a skilled workforce, an extended producer responsibility framework, and a suitable financing mechanism will benefit the entire battery value chain. It will lead to the creation of more job opportunities, increased foreign and domestic investments, securing critical mineral availability in-house, vertical integration in the industry, and enabling upstream as well as midstream operations. The reduction in Basic Customs Duty (BCD) of graphite and making BCD nil for lithium, copper, and nickel will make the rates of these minerals competitive for the local processing and refining sector, thereby securing their availability for the EV sector.?
- The current development of the EV sector can partly be owed to the mushrooming of EV startups across EV manufacturing, charging, battery assembly, etc. The abolition of angel tax for this sunrise sector is therefore expected to bring in more investments in EV startups, thereby promoting the startup ecosystem in the country.
- The credit guarantee scheme announced for Micro, Small, and Medium Enterprises (MSMEs) is a step in the right direction considering that the auto component segment largely comprises Tier-II and Tier-III MSMEs supplying top-tier players and original equipment manufacturers (OEMs). This will therefore help attract MSMEs, including women entrepreneurs who often lack collateral due to social and legal constraints related to inheritance and land ownership rights, to produce auto components required for EVs.
- There has been a y-o-y increase in budget allocations in the Production Linked Incentive (PLI) Scheme for Automobiles and Auto Components by 7 times from 2023-24 to 2024-25. Similarly, under the Production Linked Incentive (PLI) Scheme for the National Programme on Advanced Chemistry Cell (ACC) Battery Storage, there has been a massive rise of more than 20% in budget allocations from 2023-24 to 2024-25. This indicates the renewed focus of the government on manufacturing in the EV and allied sectors.
- There has been a decline of ~44% in the budget allocation for the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) scheme in 2024-25 from revised estimates in 2023-24. This can be attributed to the announcement of an interim scheme - Electric Mobility Promotion Scheme (EMPS)-2024.
The focus on manufacturing through continued support by way of PLI schemes, focus on critical minerals, and credit guarantee schemes for MSMEs are initiatives in the right direction. However, there has to be an equal focus on generating demand for cleaner modes of transportation. It is therefore suggested that with increased emphasis on fast-tracking the growth of the rural economy and generation of employment opportunities, the subsidies for EVs, especially two-wheelers, should continue in order to maintain affordability for rural populations and support market growth.
Overall, the budget is rightly aimed at addressing climate change through mitigation and adaptation, and promoting sustainable development. We therefore look forward to the release of a comprehensive policy document outlining energy transition pathways to guide stakeholders of the electric mobility and the larger clean energy sector.
