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Budget 2023-24 Expectation: Lithium-ion battery sector hopes for 5% GST cut from 18% on battery packs and cells

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Budget 2023-24 Expectation: Lithium-ion battery sector hopes for 5% GST cut from 18% on battery packs and cells

Since the electric vehicle industry is one of the major consumers of Li-ion batteries, both the EV and Li-ion battery manufacturing ecosystems are interrelated to a great extent in India

Aditya Vikram Last Updated:January 30, 2023 19:07:59 IST Budget 2023-24 Expectation: Lithium-ion battery sector hopes for 5% GST cut from 18% on battery packs and cells

A worker with car batteries at a factory for Xinwangda Electric Vehicle Battery Co. Ltd, which makes lithium batteries for electric cars and other uses, on 12 March, 2021. AFP

The lithium-ion battery manufacturing industry is one of the prominent commercial industries in India. It is noteworthy that the manufacture of rechargeable batteries for electronics, Electric Vehicles (EVs), and grid storage makes significant utilisation for lithium, representing 71 per cent of the total demand in the country.

In 2020, the market for lithium-ion batteries in India was valued at $1.66 billion. By 2027, it is anticipated to grow to $4.85 billion, with a remarkable CAGR of 17.23 per cent over the forecast period of 2022–2027.

According to a market analysis furnished by the International Trade Centre, the import value of lithium-ion accumulators dropped from $1.29 billion in 2019 to $1.05 billion in 2020 due to the adverse effects of the global pandemic. However, the Li-ion battery manufacturing ecosystem in the nation regained its momentum in 2021.

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Future opportunities for sector

Future opportunities for India’s lithium-ion battery market are likely to arise from the country’s growing Li-ion battery recycling activities, which are anticipated to secure the supply of raw materials like lithium and cobalt by reducing the reliance on the extraction of minerals from natural resources. The Indian market for lithium-ion batteries is projected to be driven by the country’s efforts to increase the adoption of electric vehicles.

Experts from the various manufacturing sectors including the Li-ion manufacturing ecosystem which accounts for 15 per cent of India’s gross domestic product (GDP) are urging the government to lower the taxes levied on imports and make amendments to the taxation system.

The industry experts from the Li-ion landscape expect the upcoming Budget to emphasise the overall enhancement of domestic industrial Li-ion cell manufacturing, BMS (Battery Management System), R&D (Research and Development), mass manufacturing, EV Motors, and motor controllers units to realise the vision set forth by NITI Aayog to be realised by 2030.

Reduction of GST

One of the major demands from the industry players in the Li-ion battery domain is the significant reduction of Goods and Service Tax (GST) on diverse components. The lithium-ion battery sector anticipates a GST cut from 18 per cent to 5 per cent on lithium-ion battery packs and cells. It must be highlighted that at present, custom duty is levied on the import of the cells, which should be removed as the lithium cells are not manufactured in India.

The Indian Electric Vehicle (EV) industry, which mainly relies on batteries, would reap vital benefits from the mentioned regulation if implemented by the government. The cost of manufacturing EVs would be cheaper due to the reduction in the GST rate, which would eventually decrease the prices for potential consumers.

The decrease in GST is anticipated to aid the government’s strategy to position India as a market leader for electric transportation. This action can also lower the price of electric vehicles, which will aid in increasing the country’s adoption of electric vehicles, resulting in the creation of additional jobs, a rise in revenue, and assistance in the accomplishment of sustainable and environment-friendly transportation.

Establishing a uniform battery exchange policy

The market for battery swapping services in India is bifurcated at present, with different players incorporating diverse battery types for various kinds of vehicles. Locating suitable charging infrastructure and connections may be challenging in the aftermath of the stated measure. As a result of the utilisation of sub-standard batteries, there have also been occurrences of fires at battery-switching facilities.

The government will be able to prevent such events by standardising legislation and defining the kind of appropriate battery packs, sizes, and connectors that must be utilised. The introduction of centralised and standard regulations by the government in the fiscal budget of 2023 will guarantee enhanced battery management coordination and interface by raising the security and efficiency of the battery-swapping service stations.

Production-Linked Incentive Scheme for sector

The integration of the Production Linked Incentive Scheme (PLI) in the impending Budget will also play a crucial role in the development of the Li-ion landscape in India. The PLI scheme is specifically designed for battery pack manufacturers to assure that there is enough capacity available to supply the anticipated demand for EV batteries. By encouraging domestic battery production, the government can also lower prices for EV producers, making electric vehicles more accessible to consumers.

FAME II subsidy extension, and PLI

Since the electric vehicle industry is one of the major consumers of Li-ion batteries, both the EV and Li-ion battery manufacturing ecosystems are interrelated to a great extent in India. The FAME II Subsidy Program has been successful in encouraging EV adoption in India by offering incentives for the purchase of electric vehicles. The initiative, which is due to end in March 2024, is being proposed for an extension by the industry to continue supporting the EV market and make electric vehicles more accessible and inexpensive for consumers.

Extension of the FAME II programme is one of the imperative expectations that the Li-ion battery manufacturing industry has from the Budget 2023-2024. With the extension of the mentioned subsidy, the government will multiply the chances of accomplishing the target of having 30 percent EVs out of all vehicles running on Indian roads by 2030.

The writer is the Managing Director and CEO of Renon India Private Limited, an energy storage company in India. He tweets @LtdRenon. Views expressed are personal

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