Electric Vehicles Policy In India

Electric Vehicles Policy in India

Prime Minister Narendra Modi’s brain child, policy think-tank NITI Aayog in association with
Rocky Mountain Institute, global think tank for clean energy, released a report” A whole –system
approach to mobility transformation”. The automobile industry in India has a turnover of USD 69
billion, one of the fastest growing industries with a CAGR of 9.4%.1 The Indian Government is
taking a leap in the direction of environmental friendly transportation by incentivizing electric
vehicle. Our country is positioned to take advantage of these dramatic changes, we are looking
forward to new jobs, reduction in oil import dependence and improved public health.
Looking around our polluted cities this seems like a utopian situation. We will have to cross a
number of hurdles to reach this goal. Currently the car can run up to 100 km after being charged
fully, this limits the distance that one can drive to as the user can not charge it again until s/he gets
back home. Hence, setting up infrastructure for charging batteries is going to be the biggest hurdle
in achieving the target of six million electric vehicles by 2020. Currently India has about 100
charging points only.2
Higher price of electric vehicles is another hurdle, as Indian market is price sensitive, current price
of these vehicle is not attractive to the market. Another concern is the longer hours it will take to
charge, expected time of charging is five to eight hours. Compared to existing time of less than
few minutes of refuelling, the consumer will be reluctant to adopt an electric vehicle.
Adoption of electric vehicle will help the country get rid of dependence on import of oil, by saving
USD 60 Billion of expenses in oil by 2030. In the same period carbon emission can be reduced by
1 Gigaton.3 Government of India launched a scheme in 2015 named “Faster Adoption and
Manufacturing of Hybrid and Electric Vehicles Policy” under which it provided subsidy of Rs.
138,000 on cars and Rs. 29,000 on bikes to boost sale of electric vehicles4. Going ahead
government is planning to lower the taxes, in GST rate for this category of vehicle will be 12% as
compared to luxury cars which are taxed at 43%.5 Government is hoping to see six million electric
and hybrid vehicles on roads by 2020 and is planning to go all electric by 2030. To support this
cause, the government is making shift in policies, such as lowering interest rates on loans for
electric vehicles and also limiting the quantity of conventional cars sold. While critics will argue
against this policy and advise the spending to be diverted into matters considered more pressing,
these incentives are in fact supports needed to make the project feasible. Consider the huge sunk
costs of battery charging stations and R&D investments required to improve efficiency, without
government support these costs will be pushed to the buyers, resulting in a higher price which will
result in a lower number of units purchased.
Industries of substitute products like conventional car manufactures and the complementary
industries of these products like petroleum exploration and refining will take a hit.
The sales of conventional cars will be capped by the government thereby reducing demand for
petrol and diesel substantially. This has forced automakers to defer new launches as well as
investment into future products until there is more clarity on the policy.
Power Generation industry will be looking forward to a bloom due to this shift in government
policies. Industries for batteries, electric vehicle components, charging pads etc will see a dramatic
increase in demand. The cap on sales of petrol and diesel fuelled bikes, three wheelers, cars and
buses will force the current automobile industry to diversify its products by introducing electric
variants. The firms will have to differentiate on basis of battery life and efficiency: more kilometres
per charge.
Tata Power Delhi Distribution Ltd. is expected to set up one thousand charging stations across
Delhi NCR6. NTPC is also planning to create charging facilities. To support Maruti’s plan of
building more hybrid cars, Suzuki, Denso and Toshiba plan to setup a lithium ion battery plant,
investing over $180 million.7
Ashok Leyland and Sun mobility has launched a strategic alliance, in which Sun will provide an
integrated system of electric mobility solutions. Ashok Leyland’s vehicles would be combined
with Sun’s smart batteries. The joint venture is trying to not only differentiate on efficiency but
also compete on cost. In the words of Chetan Maini, founder of Reva, “This partnership will help
the nation move masses via an efficient, pollution-free and cost-competitive solution for electric
mobility”. 8
NITI Aayog, in its report has recommended to set up a consortium for various components of
electric vehicles, batteries, procurement of materials and research in this area. This will help in
achieving economies of scale, thus reducing prices of electric vehicles over time.
The automobile industry in principle involves large sunk costs in infrastructure and manufacturing
licenses, hence it functions as an oligopoly in India. This is the reason that when Volkswagen
launches a 1.6L Polo, others such as Ford, Hyundai, Honda, etc. follow suit. With the launch of
electric vehicles each firm in the industry will have to continuously monitor the competitors’
product line for any new technology developments, thus requiring continued investment into R&D.
Without the incentives from the government the industry would not be able to make sufficient
sales to make development of electric cars feasible.
The policy should it achieve its target of all vehicles sold to be electric by 2030, will force not only
the producer into competition in this market but also the consumer into buying electric vehicles.
The non-renewable sources of energy are depleting at a fast rate, at the current rate of consumption
oil reserves are expected to last for 46 years and natural gas reserves will last 58 years.9 Carbon
footprint is at an all-time high and still rising, while the policy seems drastic it is necessary
considering the impact of automobiles on environment.
References
1
https://www.ibef.org/industry/india-automobiles.aspx
2
http://niti.gov.in/writereaddata/files/document_publication/RMI_India_Report_web.pdf
3
http://niti.gov.in/writereaddata/files/document_publication/RMI_India_Report_web.pdf
4
http://dhi.nic.in/UserView/index?mid=2418
5
https://www.bloombergquint.com/gst/2017/05/19/gst-highest-rate-for-hybrids-electric-vehicles-get-tax-
incentive
6
http://www.tatapower-ddl.com/showcontent.aspx?this=186&f=SUSTAINABILITY&s=Important-Lists&t=Electric-
Car-Charging-Stations-in-Tata-Power-DDL-area
7
http://www.livemint.com/Home-Page/XmL6JHFg9HkEqkr5kGDCaN/Suzuki-Toshiba-Denso-to-start-India-
lithiumion-battery-JV.html
8
http://www.livemint.com/Industry/GOvg1Nv4omwOSQ8MW0douM/Ashok-Leyland-and-Sun-Mobility-in-
alliance-to-develop-electr.html
9
http://www.theworldcounts.com/stories/Depletion-of-Natural-Resources