Union Budget 2022: Impact On Automotive Sector

union budget 2022 impact on automotive industry

Finance Minister Nirmal Sitharaman unveiled the Union Budget 2022 of Rs 39.45 Lakh Crore on the 1st of February. The Budget comprises of higher expenditure on infrastructure this year, focusing on creating more job opportunities to augment the economic activity post the Covid hiatus. Though there is not enough consolation in it, there are a few positive spots in the Budget with the EV sector, rural infrastructure development, etc.

In this article, let’s focus in detail on how this fiscal year’s budget will affect the automotive sector in particular.

EVs in Public Transport

Finance Minister Nirmala Sitharaman assured that the government is fully behind encouraging clean technology and electrifying vehicles in the public transport segment. For companies that are diving into the electric vehicle sector, this policy will prove to be a profitable avenue after the disastrous chip shortage crisis. We can expect and hope more companies, especially domestic manufacturers to enter the EV playing field after this announcement. We cannot, however, expect an overnight evolution, though, with proper support enough companies could probably handle the transition into complete electrification.

Battery Swapping Policy

The major point taken from this policy is that the government is backing the EV sector with more than just words. Battery swapping stations will receive proper support and guidelines from the government to push major companies into setting up and coming up with innovations in regards to the technology. On proper implementation, this will be a great boost to the EV sector in the country. Not just the charging infrastructure manufacturers, but the sales of electric vehicles themselves will experience a significant increase in numbers with the success of this policy.

Vehicle Prices

The Budget is not all glad tidings because even with the announcement of policies that may well be in favour of the automotive industry, the transition into electric vehicles is not going to be smooth. Significant issues like the tax cut, revised duty and incentives for the promotion of EV adoption have not been met in this 2022 Budget. Without these, there are risks for the auto companies to undertake that will not come cheaper. Furthermore, there is no mention of any financial support in the name of any tax cuts for the companies to face the rising input costs. This will only mean costlier vehicles, electric or otherwise and this will not help in domestic sales in the current market scenario.

Opening Defence R&D to Private Manufacturers

Manufacturing giants like Tata Motors and Mahindra have prior contracting experience in working for the Indian Armed Forces. Even though the current announcement of opening the Defence Research and Development to private sectors would be limited to selected segments and manufacturers only, it will open new avenues of growth for some of the component manufacturers.

MSP Payment

The government has announced a ₹2.73 lakh crore MSP payment and other benefits to aid the farming sector. This will improve rural economic growth and boost rural vehicle demand. The rural markets will constitute majorly the increased sales of two-wheelers, entry-level cars, SUVs, along with small commercial vehicles and tractors.

Boost to Infrastructure Projects

The Union Budget includes a whopping 20,000 crore funding funnelled into the infrastructure development projects. This will mean more demand for commercial vehicles as more projects crop up. Especially the national highway expansion project across India in 2022-23 will see to the revival of the commercial vehicle sector which got hit harder than others by Covid.

Well, we can’t say it’s bad, but neither is the announced Budget truly great during times of restoration like the ones we are facing in the current economy. Important issues like tax deduction and higher incentives could have made an immediate and a bigger impact compared to the current offerings. We’ll have to wait and watch for what the next year brings.

Let us know in the comments section what you think about the Union Budget 2022.

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