Even as the government envisages to make India a global hub for electric vehicle (EV) manufacturing, sectoral experts cite the need for a sustained effort to accelerate the production and demand growth of the industry in the country.
"The budget proposals will lead to demand activation in the EV space. However, a sustained push is required to grow the domestic market which will, in turn, attract foreign investment for setting-up of manufacturing facilities here," said Kavan Mukhtyar, partner and leader - automotive, PwC India.
"As India is deficient in lithium (mineral) reserves, the EV battery cells will continue to be imported. However, a robust domestic market can lead to emergence of local industries dealing with battery packages and management systems."
On July 5, Finance Minister Nirmala Sitharaman proposed various tax benefits for EV manufacturing and purchases in the Union Budget 2019-20.
Ms Sitharaman, in her maiden budget said that the government aims to leapfrog and envision India as a global hub of manufacturing of electric vehicles.
"India should make decent progress as on outcome of its efforts in encouraging establishment of global hubs for manufacturing solar cells and charging infrastructure apart from the fiscal incentives in FAME II and GST, in order to encourage move to EV's," Sridhar V, partner, Grant Thornton India said.
Currently, the market share of electric cars in India is only 0.06 per cent, whereas it is 2 per cent in China and 39 per cent in Norway. Globally, the sales of electric cars have been rising at a fast pace from just over 2,000 units being sold in 2008 to over 10 lakh in 2017.
In order to promote them, the government has included EVs in the soon to be launched scheme that envisages to invite global companies via a transparent competitive bidding to set up mega-manufacturing plants.
These companies would be provided with investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits.
Rahul Mishra, principal, AT Kearney, said: "Cluster manufacturing programs would help growth of EVs, but given limited volume they may have to depend on export markets to maintain economic viability."
Besides, the government has already moved the GST Council to lower the GST rate on electric vehicles from 12 per cent to 5 per cent.
"Also to make electric vehicle affordable to consumers, our government will provide additional income tax deduction of Rs. 1.5 lakh on the interest paid on loans taken to purchase electric vehicles," Ms Sitharaman had said.
"This amounts to a benefit of around Rs. 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicles."
The government has also implemented the phase-II of FAME Scheme, following approval of the Cabinet with an outlay of Rs. 10,000 crore for a period of three years. It commenced from April 1, 2019. The main objective of the scheme is to encourage faster adoption of electric vehicles by way of offering upfront incentive on purchase of electric vehicles and also by establishing the necessary charging infrastructure for electric vehicles.
"Government has made its intent clear that EV will be the way forward for Indian automotive industry," said Ashish Modani, vice president and co-head, corporate ratings, ICRA.
"Intra-city buses, three-wheelers and scooters are expected to be early adopters of EVs in India, whereas meaningful penetration in trucks and personal cars is still some time away."