Budget 2021 Expectations: EV startups want govt to focus on GST reform, demand push, affordability

Budget 2021 Expectations: EV startups want govt to focus on GST reform, demand push, affordability

Union Budget 2021-22 Expectations for Startups: Growing consciousness towards environment protection, the rising energy import bill of the country, and the quest for an alternative, clean energy has created the right push for the electric vehicle (EV) industry in India. The EV sales in India stood at 3.8 lakh units in 2019-20. The electric two-wheelers were the highest selling in the entire segment last fiscal. Moreover, an industry report by India Energy Storage Alliance (IESA) projects that even in the base case scenario, the EV market is expected to grow at a CAGR of 44 percent between 2020-2027 and hit 6.34 million units in annual sales.

Going by the numbers, the government and startups are putting their best foot forward on the electric mobility front to provide for a clean and green future for the country. Government initiatives such as Faster Adoption and Manufacture of Electric Vehicles (FAME) and investment into setting up 2,636 charging stations in 62 cities across the country will go a long way towards building the EV ecosystem. However, the industry is still at a nascent stage and needs much more policy support. The union budget 2021 is an opportune time for the government to announce some more measures that take the industry to the next pitstop. Below is the wish list from an EV startup founder: –

A look at the taxation framework: Currently, the 5 per cent GST tax rate on a two-wheeler vehicle may be customer friendly so as to bridge the gap with ICE vehicles but the government has in this process missed correcting the input GST procurement classification for OEM EV manufacturers in the value chain. Today, a two-wheeler is gasping for cash in lieu of the inverted duty tax structure in which it finds itself. For the government to push EV segment and accelerate adaptability, the investment from OEM EV has to be accelerated and current raw materials procurement at 18 per cent ~ 28 per cent GST are acting as a huge deterrent and with differential GST credit being not available readily for business is resulting in the huge working capital anomaly.

For any startup, requisite regular cash conversion from its operations is its lifeline to sustain and it is important that government takes due cognizance of the fact that there can be some innovative ways it can come with to resolve this. Allowing GST rate reduction in procurement or reduction via notification can be one such change in the GST framework and other can be linking the TReDS platform for the EV industry to be available for supplier invoice discounting to the value of credit available in the ECL ledger.

EV manufacturing needs demand push: The central government’s recent move to extend the production linked incentives (PLI) scheme to the automobile sector including for manufacturing of Advanced Chemistry Cells (ACC) is an encouraging move. The move will certainly boost local manufacturing. However, it is important to have a view on the aggregate domestic demand by further incentivizing individual and commercial consumption of EVs in the country. This holistic approach will strengthen the EVs ecosystem. Once this happens, EV startups will find it easy to seek big-ticket domestic and global investments that propel their growth.
Making EVs affordable through retail financing: However cool an electric vehicle is, it will have uptake when consumers can afford it as easily as a conventional two-wheeler. Easy retail financing of EVs will play a very important role in this goal. So far, this area has not received much focus from the banking regulator as well as the government. Therefore, we urge the finance minister to address this area in the union budget 2021, for the greater good of the nation.
Ever since 2014, there has been a growing emphasis on startups and Make in India in every union budget. As the nation charts its path to a green future and economic recovery post-Covid-19, we can expect that the government will have sufficient impetus on supporting the EV startups in the union budget.
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