To reach a target of 30 per cent electric vehicle penetration by 2030, radical and coordinated action is needed among all stakeholders
The uptake of electric vehicles (EVs) is still in its infancy in India. According to research from S&P Global Ratings, the EV penetration rate in India in calendar year 2022 was only 1.1 per cent, as compared to the Asian average of 17.3 per cent. Governments play an essential role in supporting the mainstreaming of EV technology in the motor vehicle sector. The competitiveness of newer technologies in comparison to incumbent ones grows over time due to established supply chains, scale economies of production, consumer preference, and improved performance and maturity. However, relying only on market forces to achieve the transition to EVs from an entrenched internal combustion engine (ICE) vehicle market is unrealistic. The EV ecosystem will require additional support in its nascency, and the government has a significant role to play.
The case for accelerating EV adoption is strong – transport emissions in Indian cities are growing rapidly, with road transport contributing about 87% of the total. In combination with the aggressive movement towards renewable power generation, EVs can significantly cut down the share of transport and pollution emissions at the local and national levels. Further, transportation is the third-largest energy consumer and the largest consumer of oil fuels, responsible for 70% of diesel and 99.6% of petrol consumption.
With India importing about 80% of its oil demand, and the price of crude oil being highly vulnerable due to global geopolitics, transport decarbonization reduces the risk to the country’s energy security.
Simultaneously, electrification presents India an opportunity to strengthen its role and move upstream in the global automotive value chain. Through a two-pronged strategy of localizing production for domestic EV consumption and developing low-cost solutions in niche areas for outsourcing, the country can capitalize on this once-in-a-lifetime opportunity through strategic industrial development of the EV sector.
The government of India has backed an extensive program for transport electrification through the implementation of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) schemes (I and II), the reduction of the Goods and Services Tax (GST) on EVs to 5 per cent, and an income tax exemption of up to INR 150,000 on interest payments for EV loans. Additionally, the government has announced a new scheme called Electric Mobility Promotion Scheme 2024, with an outlay of Rs 500 crore, providing subsidies for the adoption and manufacturing of e-2-wheelers and e-3-wheelers.
Furthermore, a range of other guidelines and notifications on EV charging standards, delicensing of EV charging services, capping of EV tariff for charging infrastructure, model Development Control Regulations (DCR) and building codes for EV charging, and green license plates for EVs further support the ecosystem.
However, the early success of e-mobility in India can largely be attributed to a supportive policy landscape at the national and state level. Of the 36 states and Union Territories in the country, 26 have released EV policies over the last 5 years, with 16 of them being released between 2020 and 2022. Here are 7 policy recommendations and subsidies needed in the EV MSME sector:
1. Reduced Taxation & Duties: To make EV manufacturing more competitive it’s important to implement tax breaks or reduced import duties on raw materials, components, and EV-specific parts imported by MSMEs
2-Infrastructure Development Support: Provide subsidies or tax incentives to MSMEs involved in setting up EV charging infrastructure. This could encourage more players to invest in charging stations, particularly in remote or underserved areas.
3. Production- Linked Incentives: For EV MSMEs we should introduce production-linked incentives (PLI). These incentives could be based on achieving certain production milestones, thereby encouraging scale and efficiency.
4-Promote Research and Development: Encourage MSMEs in the EV sector to engage in research and development by providing grants, subsidies, or tax incentives for innovative projects and technologies aimed at improving EV components, systems, and manufacturing processes.
5-Facilitate Access to Finance: Establish dedicated funds or financial institutions to provide low-interest loans, venture capital, or grants specifically tailored for EV MSMEs to invest in infrastructure, technology adoption, and capacity expansion.
6-Export Promotion: Offer incentives and support programs to enable EV MSMEs to tap into international markets, including assistance with export promotion, market research, participation in trade fairs, and overcoming trade barriers.
7-Collaborative Initiatives with OEMs: Encourage partnerships and collaborations between EV MSMEs and established Original Equipment Manufacturers (OEMs). Provide incentives for OEMs to source components from MSMEs.
Decisive and urgent action will be needed to achieve the target of 30 per cent electric vehicles by 2030 in India. At the end of the day, the formulation and notification of an EV policy is only one piece of a large puzzle.
(The Writer is Ayush Lohia, CEO, Lohia, views are personal)
