Customs Duty Exemption on Lithium, Cobalt Set to Propel EV Sector Growth

The proposed customs duty exemption on lithium, cobalt, and other rare minerals in the Union Budget 2024-25 is expected to reduce battery production costs, making electric vehicles more affordable, according to auto industry leaders. Finance Minister Nirmala Sitharaman announced the full exemption of customs duties on 25 critical minerals and a reduction in Basic Customs Duty (BCD) on two others.

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Impact on Battery Production Costs

This move will significantly boost the processing and refining of these minerals, ensuring their availability for strategic sectors. Minerals like lithium, copper, cobalt, and rare earth elements are essential for nuclear energy, renewable energy, space, defence, telecommunications, and high-tech electronics.

SIAM President Vinod Aggarwal highlighted that the customs duty exemption on lithium and cobalt imports, along with the extension of concessional customs duty on Li-Ion cells until March 2026, will drive growth in the Indian auto industry. He also noted the withdrawal of the 2% equalisation levy on e-transactions as a positive step.

Support for Rural Development

Aggarwal welcomed the liberal allocation of Rs 2.66 lakh crore for rural development and infrastructure, which he believes will boost the rural economy. SIAM also supports budget proposals for skilling and upskilling initiatives and support for MSMEs, many of which are key suppliers to the auto sector.

ACMA President Shradha Suri Marwah stated that reducing customs duty on critical minerals would encourage cell manufacturing in India and contribute to the evolving EV ecosystem. Deloitte India Partner Rajat Mahajan added that this move might prompt some players to indigenise battery production in India.

Industry Reactions

However, Mahajan pointed out that the Budget did not offer direct benefits to the automotive sector. "The industry was not expecting a lot but was definitely looking for some announcements with respect to FAME III subsidies," he said. BatX Energies Co-Founder & CEO Utkarsh Singh mentioned that reducing BCD and exempting 25 essential minerals from custom charges would lower battery manufacturing costs, making electric vehicles more affordable.

Hero MotoCorp Executive Chairman Pawan Munjal praised the Budget for positioning India as a technology-driven economy committed to sustainable development. Ashok Leyland Executive Chairman Dheeraj Hinduja said reducing duties on rare earth minerals would promote sustainable mobility.

Focus on Sustainable Development

Mercedes-Benz India MD & CEO Santosh Iyer noted that while they were expecting a GST announcement for long-term reduced GST on Battery Electric Vehicles (BEVs), developing a climate finance taxonomy is a step towards achieving climate commitments. TVS Motor Company MD Sudarshan Venu emphasised that robust infrastructure rollout remains a government priority with a multiplier effect on the economy.

Mahesh Babu, CEO of SWITCH Mobility, acknowledged that while there is no direct EV scheme like FAME III in the Union Budget 2024, it includes provisions that could benefit India's EV ecosystem. Bain & Company Partner Mahadevan Seetharaman said regulatory support like customs duty exemption is crucial as India relies heavily on imports for critical battery raw materials.

Wardwizard Innovations & Mobility Chairman & Managing Director Yatin Gupte appreciated the strong fiscal support for infrastructure projects over the next five years as a significant boost for the automotive sector. Quantum Energy Managing Director Chakravarthi C highlighted that developing new technologies requires capital and skill, both addressed in this Budget.

Neuron Energy CEO & Co-Founder Pratik Kamdar said exempting custom duties on critical minerals like lithium and cobalt would lower battery cell production costs, making electric vehicles more affordable. Uday Narang, Founder and Chairman of Omega Seiki Pvt Ltd., praised the focus on women-led development and substantial allocation for schemes benefiting women and girls.

The Union Budget 2024-25's strategic decisions are set to impact India's EV market by lowering production costs and enhancing competitiveness. The emphasis on economic growth through infrastructure development and support for various sectors indicates a comprehensive approach to fostering sustainable development.