In the latest Union Budget for FY 2019-2020, the Modi government 2.0 has provided strong support to the nascent electric vehicle industry with the announcement of tax incentives to speed up the transition of the automobile industry from fossil fuel dependent to electric.

A budgetary allocation of ₹5 billion (~$73 million) has been made to the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME India) program implemented by the Department of Heavy Industries. The adoption of approximately 52,800 electric vehicles (EVs) across all EV categories is being supported through demand incentives. The budgetary allocation through demand incentives for EV adoption amounts to ₹2.71 billion (~$40 million).

To enhance the economic growth and advance the “Make in India” policy, the government plans to launch a program to attract global companies through a bidding process to set up large-scale manufacturing projects in sunrise technology areas like lithium storage batteries and solar charging infrastructure to name a few. Provisions to provide these entities investment links and income tax exemptions have also been made in the latest budget.

The categories of EVs supported through budgetary incentives are electric buses, four-wheelers, three-wheelers, and two-wheelers. Several electric buses have already been deployed through FAME India program in states like Andhra Pradesh, Goa, Kerala, Jammu and Kashmir, and in the national capital of Delhi.

The budget also makes allocations for establishing the much-needed charging infrastructure in various cities, state capitals, designated smart cities, and highways. A total of 396 charging stations have been provisioned, with 330 to be set up this year in cities and 66 along highways. Several policies have been introduced to promote public charging stations (PCS) over the last couple of years. These policies are aimed to provide the support required to achieve targets for charging infrastructure allocated in the budget.

In her budget speech, Finance Minister Nirmala Sitharaman had said, “Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of electric vehicles. The inclusion of solar storage batteries and charging infrastructure in the above program will boost our efforts. The government has already moved the GST Council to lower the GST rate on electric vehicles from 12% to 5%.”

The budget also states that the government will provide income tax deductions of ₹0.15 million (~$ 2,186) on the interest paid on loans taken to purchase electric vehicles. This tax deduction will benefit the EV consumer to the level of ₹0.25 million (~$3,643) by the time the entire period of the loan ends.

There is a larger impetus on EV’s in this year’s budget compared to the support for renewable energy. Even as the benefits of pollution are touted, the larger goal is to reduce oil import, which hurts the government fiscally. India currently imports about 80% of its oil needs, which cost the country over $100 billion in import bill last year.

“The announcements on EVs in the Union Budget 2019-2020 bring cheers to both consumers as well as EV manufacturers. To make India an EV manufacturing hub, the decision on incentivizing EV manufacturing by extending benefits under Section 35AD (1) is a move in the right direction. It will help in the creation of a local manufacturing base and encourage component manufacturers to invest in the sector. The provision of an additional income tax deduction of an amount up to ₹150,000 (~$2,190) on the purchase of EVs would encourage customers to opt for EVs. Additionally, eliminating customs duty on lithium-ion cells would further cut down the cost of batteries and help local battery manufacturers to scale-up the business. The EV industry has witnessed impressive growth in the FY 18-19, and with these key measures announced, we anticipate a brighter future ahead for the industry” said Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles (SMEV).

Despite the slew of measures to promote EVs, the share of EVs in the total number of vehicles sold is estimated to fall within 1% in the coming year.  On the bright side, the EV transition is expected to generate almost 340,000 jobs in FY 2019-20.

Mercom has also reported on the solar-specific highlights from the new budget. Read about what the budget holds for the solar industry here.