Union Budget 2023: Redefining the growth of India’s automotive sector

Automobile and auto component sector in India is estimated to be more than $222 billion (Rs1,830,834 crore) industry.

Budget - Freepik

By Aakash Minda

The automotive sector in India is shifting towards ‘sustainable mobility’, as we speak. The recent Union Budget announcements specific to the automotive sector have the potential to ensure that the change is fast and tectonics.

Echoing the government of India’s focus on green mobility, the budget opens up a plethora of opportunities for automotive solution providers in the next few years.  

Here are a few facets which will help us gain a deeper perspective.

Tailwinds that matter

Automobile and auto component sector in India is estimated to be more than $222 billion (Rs1,830,834 crore) industry. The sector accounts for 7.1% of the country’s GDP (2021) and 49 percent of the country’s manufacturing GDP. Riding the wave of green mobility, India has witnessed exponential growth in electrification of vehicles. India achieved over 200 percent growth in EV sales in FY2022 over FY2021. The government intends to achieve 30 percent market penetration in the passenger cars segment by 2030.

Other noteworthy factors contributing to this momentum include global impetus on supply chain diversification, strengthening of Tier 2 and 3 domestic supplier base, and initiatives like ‘Make in India’ (PLI, FAME scheme). Several global OEM players have recently announced plans to make India their export hub or set up a global R&D base in India.

Expanding consumption class is also adding to the demand. This segment is investing in more and better vehicles across segments to serve their rising mobility needs, indicating healthy, consistent growth for auto component manufacturers.

Green mobility gains unprecedented momentum

The budget promises to ignite fresh demand, spur the transition to green mobility and accelerate the domestic manufacturing ecosystem. Strengthening the foundation further, the emphasis on accelerating EV adoption will further extrapolate the trajectory of growth.

The budget assures the desired momentum behind growing EV sales with the announcement of a customs duty exemption on the import of capital goods and machinery required for the manufacture of lithium-ion batteries that typically power EVs. This will facilitate wider adoption of EVs in the country, encourage local manufacturing network,s and create more employment opportunities.

This exemplary move will boost the EV ecosystem by reducing the cost of EVs in the country. A rising EV startup ecosystem, focus on localisation and conducive government policies will help to drive sustainable mobility in the country.

Semiconductor: The vital ‘cog’ in the auto component ecosystem

While stimulating demand, the government has also acted to bolster the supply side of the equation by way of the Rs 3,000 crore allocation for the Indian Semiconductor Mission. This initiative will help develop an indigenous semiconductor manufacturing base.

Semiconductor shortage has dominated headlines post-Covid, hindering the manufacturing and delivery for Tier 1 and OEMs. The semiconductor mission will reduce the industry’s reliance on imports thereby cushioning it from disruptions in the global supply chain.

Vehicle Scrappage Policy and ancillary announcements

Another landmark announcement was the scrappage policy for vehicles older than 20 years. Not only will it put newer, cleaner cars on the road, will also spur demand for new vehicles, acting as a stimulus of sorts to drive sales. This will also boost the auto components sector as demand for new cars will in turn spur demand for components from OEMs rushing to fulfil growing orders by manufacturing more cars. 

Other broader measures unveiled in the budget will also benefit the sector.  The revision to the income tax slabs, for instance, will put more disposable income in the hands of the middle class which will in turn drive demand for entry-level cars and two-wheelers. The 33 percent increase in the capital outlay, to build infrastructure and create jobs will further spur demand for commercial vehicles.

Roadmap for the future

Success of these above-mentioned initiatives depends on a collaborative effort to drive the common objective of green mobility and putting India on the world map as the global manufacturing hub.

The budget announcement has given the sector a solid head start, strengthening the foothold across various growth parameters. Now that the upcoming fiscal year has started on a strong note, it’ll be interesting to unravel how the power of collective effort of the government and the industry players lead this budget towards fruition.

The author is Executive Director, Spark Minda, a tier 1 auto component supplier.

Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.

Representational image courtesy: Starline on Freepik

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First published on: 19-02-2023 at 11:30 IST
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