Union Budget 2022: What's in it for the automotive sector

Finance Minister Nirmala Sitharaman on Tuesday in her Union Budget 2022 speech has announced a couple of measures to boost the Indian auto industry. These include steps like announcing a new battery swap policy to encourage electric vehicle adoption, opening up defence R&D to private players for auto component development.

The government has also announced an MSP payment of ₹2.73 lakh crore along with other benefits to aid the farming sector, which could eventually help demand for automobiles in rural markets to grow.

Here are the announcements from the Union Budget 2022 that will directly and indirectly help the Indian auto industry to grow.

Battery swapping policy

One of the key announcements made by the Finance Minister in Union Budget 2022 is the Battery Swapping Policy. If implemented efficiently, this can benefit the entire EV ecosystem in India. The vehicle manufacturers and EV charging infra players too will get benefit from this policy that could boost EV adoption in India. The policy is expected to drive movement to the electrification of fleets for last-mile mobility for both people and goods.

Under this battery swapping policy, the government will encourage private players to take part in the process of setting up battery-swapping stations and technology. The impact of this policy will be limited to certain players in the sector and unlikely to bring any big change in the Indian electric mobility space at a quick pace.

Commenting on this, Sameer Aggarwal, CEO and Founder, EV financing company RevFin said the policy will help in the wide-scale adoption of batteries as a service, reducing upfront ownership costs of electric vehicles. Rajat Verma, CEO and Co-Founder of li-ion battery maker Lohum said this policy comes as a much-desired push towards achieving net-zero goals. Samrath Kochar, CEO and Founder of Li-ion battery maker Trontek said the budget will promote domestic battery manufacturing and support the development of indigenous capabilities.

EVs in public transport

Finance Minister Nirmala Sitharaman said that government will encourage cleantech and electric vehicles into the public transport space. This will further help the auto companies that manufacture electric buses and commercial vehicles. This strategy will also help those companies' respective supply chain partners as well. This announcement will impact certain players only, but not the whole automotive sector.

Cars, bikes, scooters won't get cheaper

While the FM Nirmala Sitharaman has made some announcements to boost the auto industry at large in India, not all the expectations of the automotive industry have been met. Key demands like incentives for new electric vehicle adoption, tax cut and revised duty structure have been left almost unchanged. Also, no major announcement was made to help the auto industry overcome the rising input costs. Hence, it is highly unlikely that the price of cars, bikes, scooters would get cheaper. Instead, continuous pressure on vehicle manufacturers could result in increased costs in the short to medium term.

Opening defence R&D to private players

The announcement of opening up defence R&D to private players could open up a new growth segment for auto component companies in India. Car manufacturers such as Tata Motors and Mahindra have been already working in the defence sector through their respective wings. They have been making vehicles for the Indian armed forces. Now, opening up the defence R&D for private players will help them with new revenue and growth area. However, this would be limited to certain players only.

₹2.73 lakh crore MSP payment to boost rural vehicle demand

The government has announced a ₹2.73 lakh crore MSP payment along with other benefits to aid the farming sector. This could help improve the rural economic sentiment and eventually improve demand for vehicles in rural markets that contribute largely to the sales of two-wheelers, entry-level cars and SUVs along with small commercial vehicles and tractors. The second wave of the Covid-19 pandemic hit the rural economic sentiment badly, which could be revived through this strategy.

₹20k crore to boost infrastructure projects

The Finance Minister on Tuesday announced the allocation of ₹20,000 crore for infrastructure projects. This will eventually boost demand for commercial vehicles as new projects at a large create demand for new CVs. The announcement of an expansion of national highways across India by 25,000 km in 2022-23 comes at a time when the CV sector has been hit hard by the pandemic and has just started showing signs of revival.