India: Electric Vehicles ‘In The Fast Lane' In India

Last Updated: 20 August 2019
Article by Ashima Obhan and Vrinda Patodia

Monday, July 29th, 2019, marked the earliest Earth Overshoot Day that mankind has seen. 209 days into the calendar year and we have used up all the resources the Earth could regenerate in 365 days. Earth Overshoot Day is the date when humanity’s annual demand on nature exceeds what Earth’s ecosystems can regenerate in that year. This date has crept up by two months over the last 20 years. At this rate, it would take 1.75 Earths to sustainably meet the current demands of humanity, according to the available data.

Human beings have consistently tried to improve the process of travel – getting from one place to another quickly, comfortably and efficiently. In light of these global environmental changes, electrically-powered vehicles have become more prevalent in our society. One of the primary reasons for the introduction of electric vehicles into the market is the concern over greenhouse gas emissions that conventional automobiles emit and their contribution to global warming. Electric Vehicles produce zero emissions and are predicted to be the next disruptive market force for transportation and technology.

Electric Mobility in India

In 2019, Finance Minister Nirmala Sitharaman said in her budget speech that India wants to become a “global hub of manufacturing of electric vehicles”. The Economic Survey, a government forecast, released a day before the budget envisaged an Indian city possibly emerging as the “Detroit of electric vehicles” in the future.

With the present government providing incentives to the Electric Vehicle Industry and encouraging both manufactures and consumers to adopt electric vehicles, India's drive towards Electric Vehicles led mobility has accelerated in recent years. The union government has been trying to encourage adoption of electric mobility through a number of policy initiatives. One such scheme is the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles Scheme or better known as the FAME Scheme.

FAME Scheme

On April 1, 2019, Phase II of the FAME Scheme came into force. The FAME India Scheme promotes manufacturing of electric and hybrid vehicle technology and aims to ensure sustainable growth of the same. Fiscal incentives to promote Electric Vehicles, in the form of FAME Phase I, were launched in 2015 for a period of two years. These were later extended up to March, 2019. With its outlay of Rs 450 crore during the last four years, FAME I helped about 2.63 lakh electric/hybrid vehicles, including 1.4 lakh two-wheelers (E-2W) and 1.01 lakh four-wheelers (E-4W)1.

FAME II is India’s second phase of the FAME scheme which has been launched with an outlay of INR 10,000 Crore which would be invested over a period of 3 (three) years. Under FAME II, funds have been allocated to buses (only electric vehicle technology), four wheelers (electric, plug in hybrid and strong hybrid), three wheelers (electric) including e-rickshaws and electric two wheelers, all of which shall be eligible for incentives provided under FAME II.

What is interesting to note is that while globally car makers have been focusing on electric cars in the premium segment (costing over ₹10 lakh), India is targeting smaller vehicles. The reason for this is, according to NITI Aayog, a government think-tank, 79% of vehicles on Indian roads are two-wheelers, while three-wheelers and cars costing less than ₹10 lakh account for 4% and 12% of the vehicle population, respectively2.

Union Budget 2019 Incentives

In her maiden budget, finance minister Nirmala Sitharaman announced several incentives and subsidies to the Electric Vehicle Industry. Income tax rebates of up to ₹1.5 lakh were offered to customers on interest paid on loans to buy electric vehicles, with a total exemption benefit of ₹2.5 lakh over the entire loan period. To further incentivise e-mobility, the Budget provides that customs duty shall be exempted on lithium–ion cells, i.e. Nil duty shall be chargeable on the import of lithium-ion batteries in India, with the aim of reducing the cost of EVs, as they are not produced locally. Furthermore, makers of components such as solar electric charging infrastructure and lithium storage batteries and other components will be offered investment linked income tax exemptions under Section 35 AD of the Income Tax Act, 1961 (Deduction in Respect of Expenditure On Specified Business), and other indirect tax benefits to the manufacturers of lithium storage batteries and other ancillary components.

Another push by the Central Government toward Electric Vehicles is the recent goods and service tax (GST) cut on electric vehicles from 12% to 5% on July 27th, 2019. On the other hand a base rate of 28% GST is levied petrol and diesel vehicles. GST on chargers for e-vehicles was also reduced from 18% to 5%.

State Government Incentives

Several state governments have in line with the central government schemes, incentives and subsidies released Electric Vehicle Policies in their respective states. State governments are trying to promote local manufacturing of Electric Vehicle components. Electric bus manufacturers like Ashok Leyland, Goldstone Infratech, Tata Motors, JBM-Solaris, BYD are also all working with various state governments to electrify our public transport and electric buses are already running in cities such as Delhi, Lucknow, Dehradun, Manali and Kolkata on a trial basis.

Conclusion

While India’s drive towards e-mobility and electric vehicles is definitely in the fast lane, in an indication that mass adoption of Electric Vehicles in India is still some years away, a shareholder of Mahindra and Mahindra, asked managing director Pawan Goenka when the company will venture into or launch electric vehicles. Mahindra and Mahindra at that time was and still is India’s largest electric vehicle manufacturer.

Electric Vehicles is what our future seems to be heading towards. However, having said that there is little possibility that EVs will ever completely overshadow conventional vehicles which will always stay in style due to their history. Electric Vehicle are here to stay, yet how green is this transition for India or any other developing country?

No doubt, Indian cities would be better off without the exhaust fumes of internal combustion engines. However, electricity generation causes its own pollution, particularly in India, which depends largely on coal-fired plants for the purpose. What your Electric Vehicle saves by way of carbon containment, your power source could negate. So the harm done to our air by automobiles would then be done by power plants, which would need to add capacity to meet the higher demand for electricity3. Without a parallel push towards green methods of power generation to charge Electric Vehicles, the gains from lower vehicular pollution may be offset.

Another major hurdle to overcome is creating the recycling infrastructure for used Li-Ion batteries (used in electric vehicles), which have an estimated life of five to ten years. This is something even developed nations are struggling with.

Footnotes

1.https://www.financialexpress.com/opinion/electric-mobility-is-indias-big-opportunity/1624067/

2.https://www.thehindu.com/business/Industry/how-is-india-driving-to-electric-mobility/article27103659.ece

3.https://www.livemint.com/opinion/online-views/opinion-our-premature-push-for-electric-vehicles-1561394789250.html

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