For hybrid car makers who wanted tax cuts, hopes are fading

FAME-II, short for faster adoption and manufacturing of (hybrid &) electric vehicles, may continue its incentives into its next edition, FAME-III.  (Bloomberg)
FAME-II, short for faster adoption and manufacturing of (hybrid &) electric vehicles, may continue its incentives into its next edition, FAME-III. (Bloomberg)

Summary

FAME-II, the scheme to incentivize hybrid and electric vehicles, is expected to continue with its incentives in its next edition, FAME-III, with an outlay of up to 12,000 crore.

New Delhi: The upcoming interim budget is unlikely to have any additional incentives for hybrid vehicles, people aware of discussions in the government said.

A scheme, FAME-II, already exists to incentivize both hybrid and electric vehicles. In addition, a committee instituted by the ministry of heavy industries (MHI) will seek the Indian auto industry’s views on the possibility of reducing taxes on hybrid vehicles.

FAME-II, short for faster adoption and manufacturing of (hybrid &) electric vehicles, may continue its incentives into its next edition, FAME-III. The new version is expected to receive an outlay of up to 12,000 crore, the people cited above said on the condition of anonymity.

FAME-II, which expires on 31 March 2024, doles out demand-side cash subsidies on the sale and purchase of hybrid and electric four-wheelers for commercial use if they meet certain price and performance criteria.

FAME-III may also include incentives for inter-city buses and e-trucks on an experimental basis, and charging infrastructure, in addition to the existing provisions under FAME-II, one of the people cited above said.

Meanwhile, the department for promotion of industry and internal trade (DPIIT) and MHI are inclined to incentivize hybrids through reduced taxes, albeit at a lower level compared to battery electric vehicles, to spur new investments in the sector.

However, the industry is divided on the matter, with Japanese original equipment manufacturers (OEMs) such as Toyota and Maruti Suzuki lobbying for the technology, and domestic automakers such as Tata Motors and Mahindra & Mahindra, alongside South Korean OEMs Hyundai and KIA, intensely opposing it.

According to people aware of the matter, Tata Motors, the largest passenger EV maker in India, in its submissions to the government, has argued that strong and plug-in hybrids already receive an up to 7% benefit in compensation cess compared to IC-engine cars in some segments.

And while battery EVs (BEVs) attract a GST of 5%, hybrids and IC-engine vehicles attract 28%.

According to Toyota Kirloskar Motor, policy stability and continued emphasis on spurring investment and infrastructure development will be crucial to improve supply chain efficiencies. “We remain confident that the government will continue its push towards shifting the economy and transportation sector to a greener future that is less dependent on fossil fuels," Swapnesh R. Maru, deputy managing director, Toyota Kirloskar Motor said. “This includes policy support to various technologies that utilizes natural and indigenous energy sources such as solar, wind energy, and bio-fuels like ethanol and biogas."

An MHI-instituted committee, which will study the proposal to rationalize tax on hybrids, comprises representatives from all major manufacturers, the ministry of petroleum and natural gas, government-affiliated testing agencies including Arai, the Bureau of Indian Standards, automotive industry bodies Siam (Society of Indian Automobile Manufacturers) and Acma (Automotive Component Manufacturers Association of India) and federal think-tank Niti Aayog.

The committee is likely to declare its recommendations in over a month’s time, but given that opinion on the matter is divided, the discussion could take longer to conclude.

In addition, automakers are looking to the government to continue its push to encourage local manufacturing of batteries and spur greater localization of the automotive supply chain to also realize the Indian auto component sector’s export potential.

“Regulatory framework in conjunction with the Make-in-India and Skill India initiatives is facilitating development and manufacturing of globally competitive products, providing further impetus to exports," said Piyush Arora, managing director & CEO, Škoda Auto Volkswagen India. “Infrastructure development is crucial for exports and requires long-term budget allocations. The government’s commitment and strategic investments are pivotal in realizing India’s goal of becoming a global supplier in the automotive space."

“With back-to-back good performance in FY23 and FY24E, the industry is upbeat and positive; Nifty auto index has grown by 46% compared to January 2022," Rajat Mahajan, partner, Deloitte India said. “The Make-in-India thrust, efforts of the OEMs, supplier and dealer community, and favourable customer sentiment have ensured that the Indian auto industry is self-sustained and not significantly affected by global disruptions. Like always, there are expectations from the government when it comes to budget like reduction in overall GST slabs."

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