The EV sector is expecting a reduction in the goods and services tax (GST) rate on components and an extension of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) subsidy scheme in the interim budget.

The overall EV share of auto sales in India has increased to 6.38 per cent in 2023 from 1.75 per cent in 2021.

Continued government support through incentives and investments in bolstering the ecosystem remains crucial to the massive adoption of EVs.

“An abrupt withdrawal or discontinuation of the FAME II or other incentives may lead to an increase in the prices of EVs by around 25-30 per cent, which can severely hamper the EV adoption momentum," said Arti Roy, associate director, CareEdge.

"Additionally, it can disrupt ongoing investments in the EV sector, leading to a substantial setback in the advancements made in promoting sustainable transportation,” she said.

The industry expects an extension of FAME II subsidy, which is due to expire on March 31. The subsidy incentivises domestic manufacturing of EVs and provided relief to a total of over 12.16 lakh electric vehicles with an expenditure of Rs 5,422 crore as of December 2023.

"We are hopeful to see a continued focus on long-term policy measures that promote EV adoption such as reduced GST rates, extension of FAME-II subsidies/introduction of FAME-III, and increased infrastructure spending for charging infrastructure," stated Naveen Munjal, the founder and managing director of Hero Electric.

With lithium-ion batteries accounting for over 30 per cent of cost, industry players are seeking a GST reduction from the current 18 per cent to a more favourable 5 per cent.

Such a move could translate to an immediate Rs 25,000 price drop for a typical electric scooter, making EVs more accessible to the middle class.

The Society of Manufacturers of Electric Vehicles (SMEV) estimates that this, coupled with the FAME II extension, could boost demand by 35 per cent in the next fiscal year alone.

Arun Sreyas, co-founder, RACE Energy, said “It's crucial to acknowledge battery swapping's pivotal role in EV’s growth. Presently, a notable disparity exists in the GST rates between EVs sold with fixed batteries (taxed at 5 per cent) and the lithium-ion batteries utilised for swapping purposes (taxed at 18 per cent when sold separately).