Union Budget 2024: Boosting EV Adoption and Hybrid Vehicle Affordability

Uttar Pradesh recently waived the registration tax on strong hybrid vehicles to promote eco-friendly transportation, potentially paving the way for further tax concessions. This move has reignited the debate on whether hybrid cars should be included under the Faster Adoption and Manufacturing of Electric Vehicles policy (FAME III).

Earlier this year, Union Minister for Road Transport and Highways, Nitin Gadkari, proposed reducing the GST on hybrid cars to five percent and on flex-fuel engines to twelve percent. This proposal has gained traction, leading Uttar Pradesh, the country’s second-largest state, to waive the registration tax on hybrid vehicles under FAME II. With the 2024 Budget on the horizon, what can hybrid car manufacturers expect in terms of benefits, and how will this affect the electric vehicle (EV) segment?

Hybrid Cars to Receive GST Cut?

The Uttar Pradesh government’s decision to scrap the registration tax on hybrid vehicles has significantly impacted the automotive industry. Leading hybrid vehicle manufacturers such as Toyota and Maruti Suzuki have welcomed the Uttar Pradesh government’s decision, whereas Hyundai, Tata Motors, and Mahindra have voiced their concerns. The UP Government specified that only vehicles priced under ₹20 lakh and falling under the FAME II scheme are eligible for this waiver. This includes models like the Toyota Hyryder, Maruti Suzuki Grand Vitara, and Honda City Hybrid.

The Finance Ministry has proposed reducing the GST on hybrid vehicles to five percent and removing the additional fifteen percent cess currently applied to the twenty-eight percent GST. Currently, hybrid vehicles are taxed at forty-three percent GST, while internal combustion engine vehicles are taxed at forty-eight percent.

Implications for the EV Market

The Vahan report for June 2024 indicates a downturn in the electric vehicle (EV) market. Sales dropped from 7,887 units in May 2024 to 6,888 units in June 2024. Tata Motors, the leading EV manufacturer, experienced a seventeen percent decline, while Mahindra saw a twenty-three percent decrease. Overall, the EV market faced a 12.7 percent month-on-month slump. With a market share of just two percent, EV manufacturers are under pressure from the rising demand for hybrid vehicles. Jato Dynamics predicts that the hybrid segment will capture around two percent of the market.

The 2024 Budget could bring significant changes for hybrid vehicles. With the proposed GST reduction and the removal of additional cess, hybrid cars could become more affordable, potentially boosting their market share. However, this shift may pose challenges for the EV segment, which is already experiencing a downturn. The automotive industry awaits the 2024 Budget to see how these proposed changes will shape the future of hybrid and electric vehicles in India.