Aligned with the ‘Viksit Bharat’ vision, the 2025 budget proposes a forward-looking approach for the auto sector, fostering a sustainable ecosystem with financial allocations and duty exemptions. Among the highlights:
- Support for EV Manufacturing. The exemption of customs duties on 35 capital goods for lithium-ion battery production is a commendable step toward reducing production costs and improving EV affordability.
- Production-Linked Incentive (PLI) Scheme. The government allocated $325.31 million USD (Rs 2,819 crore), down from $403.90 million USD (Rs 3,500 crore) last year, which may raise concerns about the continuity of financial backing for emerging EV and hydrogen fuel cell technology.
- Tariff Rationalization. Reduction of tariff categories to just eight simplifies the customs structure and promotes ease of business for auto manufacturers.
- MSME Credit Boost. With increased access to credit for MSMEs in the auto component industry, supply chain development will strengthen, driving innovation and expansion. MSME stands for Micro, Small, and Medium Enterprises. This term refers to a significant sector of the Indian economy that plays a crucial role in the country’s economic development and growth.
- Dhan-Dhaanya Krishi Yojana. Rural income growth via this scheme, along with increased Kisan Credit Card limits, is expected to boost demand for two-wheelers, tractors, and small commercial vehicles.
While there are several positive aspects to the new budget, there also are potential shortcomings and industry concerns.
- Lack of Direct Consumer Incentives. Unlike past policies such as the FAME scheme, this budget does not introduce direct subsidies for vehicle buyers. While an increase in disposable income via tax relief (income tax exemption raised to $13,848.00 USD (Rs 12 lakh)) might help, it does not provide targeted incentives to accelerate auto sales. FAME (Faster Adoption and Manufacturing of Electric Vehicles) is a government-backed scheme launched in 2015 to promote the adoption of electric vehicles in India.
- PLI Allocation Reduction. A reduced PLI allocation raises questions about long-term sustainability of incentives for electric and hydrogen-powered vehicles, which are still in their nascent stage in India. PLI (Production Linked Incentive):
The Production Linked Incentive (PLI) scheme is a government initiative designed to boost domestic manufacturing and attract investments in India. It provides financial incentives to companies based on incremental sales of products manufactured in India. The scheme aims to reduce import dependency, increase employment opportunities, and strengthen India’s position in global supply chains. - Limited Push for Charging Infrastructure. While EV production receives strong support, the budget does not outline significant funding or policy interventions for expanding public charging infrastructure, a key barrier to EV adoption.
- Semi-Conductor & Electronics Manufacturing. While duty exemptions on semiconductor devices (CTH 8541) and laboratory chemicals (CTH 9802) aid local production, a more structured approach, including PLI incentives for semiconductor fabs, would have been beneficial.
PSR Analysis. The Union Budget 2025 presents a balanced yet cautious roadmap for the automotive sector, prioritizing green mobility and domestic manufacturing. While there is a clear intent to promote self-reliance and sustainability, certain gaps—such as the absence of direct buyer incentives, lower PLI allocation, and limited EV infrastructure support—could slow down industry momentum. The government must complement these measures with long-term policies to ensure the continued transformation of India’s automotive sector into a global powerhouse. PSR
Aditya Kondejka is Research Analyst – South Asia Operations at Power Systems Research
