Budget 2023-24: Customs duty waived for machinery required to manufacture lithium-ion cells for batteries

Battery Energy Storage Systems with a capacity of 4,000 MWH will be supported with Viability Gap Funding, Finance Minister Nirmala Sitharaman said

By Seema Prasad
Published: Thursday 02 February 2023
Budget 2023-24: Customs duty waived for machinery required to manufacture lithium-ion cells for batteries
Photo from iStock for illustration Photo from iStock for illustration

Union Finance Minister Nirmala Sitharaman announced in her 2023-24 budget speech that “to further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles.”

Lithium-ion batteries are currently the dominant battery technology for electronic vehicles in India, which are currently being imported. The annual EV sales crossed the 1-million mark for the first time in 2022, amounting to 10,75,859 units, according to JMK research, an international advisory and consultant firm across the energy sector, illustrating the growing demand for batteries, which are primarily sourced from China.

Vibhuti Garg, South Asia director of the Institute for Energy Economics and Financial Analysis told Down to Earth, that waiving customs duty to ease manufacturing of lithium-ion cells for batteries, though a welcome move, is only limited to green mobility. It also needs to apply to battery energy storage systems at the grid-scale too.

Sitharaman also said in her budget speech on February 1, “To steer the economy on the sustainable development path, Battery Energy Storage Systems with a capacity of 4,000-megawatt hours will be supported with Viability Gap Funding. A detailed framework for Pumped Storage Projects will also be formulated.”

Shailesh Vickram Singh, founder of Climate Angels said in a press statement, “the decision to extend custom duty benefits for manufacturing of Li-On cells is a very good step as the increased volume of electronic vehicles will see capacity expansion on the domestic side too, which so far has been more import-driven due to low volumes.”

“This will result in huge domestic expansion as well as lead to innovation in the battery space where new battery packs will be more aligned to Indian conditions than global settings which will ultimately make EV vehicles, safer, cheaper, and better."

Other measures announced to decarbonise and expand the transport sector announced in 2023-24 budget include:

  1. Replacing old polluting vehicles is an important part of greening the Indian economy, the minister said. “In furtherance of the vehicle scrapping policy mentioned in Budget 2021-22, I have allocated adequate funds to scrap old vehicles of the Central Government. States will also be supported in replacing old vehicles and ambulances," she added.
  2. Coastal shipping will be promoted as the energy-efficient and lower-cost mode of transport, both for passengers and freight, through PPP mode with viability gap funding. 
  3. One hundred critical transport infrastructure projects, for last- and first-mile connectivity for ports, coal, steel, fertiliser and food grains sectors have been identified. They will be taken up on priority with an investment of Rs 75,000 crore, including Rs 15,000 crore from private sources.

Promises kept?

In last year’s speech, Sitharaman had also spoken about policies that could help the EV sector, which did not yield much success. She said that “considering the constraint of space in urban areas for setting up charging stations at scale, a battery swapping policy will be brought out and inter-operability standards will be formulated. The private sector will be encouraged to develop sustainable and innovative business models for ‘Battery or Energy as a Service’. This will improve efficiency in the EV eco-system.”

Under Phase II of Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) India Scheme, 2,877 charging stations in 68 cities across 25 states / UTs were sanctioned in February 2022. A demand incentive for all electronic vehicles amounting to about Rs 827 crores was given last year.

According to a JMK analysis in October 2022, under FAME India, there has been little push from the government for establishing charging stations as India needs 20 lakh more charging stations by 2030, in addition to the 5 lakh already in the pipeline. 

This is to charge the five crore electronic vehicles that will enter Indian roads according to their estimates by 2030. The analysis said that a viability gap fund will need to be established to lower the initial capital expenditure.

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