Introduction
The automobile industry in the 20th Century is ruled by the United States of America and other European nations. It would not be a hyperbole to state that the western world has mastered the art of Internal Combustion technology (ICT) in automobile manufacturing and India due to its colonial shackles was never in a position to fight the dominancy of well-established first world countries. However, by the end of the century, the world realized one of the biggest costs involved in internal combustion technology. It is the cost of the environment as fossil fuels used in ICT is highly detrimental to the air, we breathe in. Further, for countries like India, which is hugely dependent on imports for its fuel needs, traditional vehicles have a detrimental effect on the country’s forex deposits. This earmarked the beginning of a new era of Electric Vehicles (EV). To state the basic difference between EV and traditional vehicles is that while traditional vehicles use gasoline (or other fossil fuels) to produce heat and run the vehicle, EV uses the electricity to charge the battery and convert the electric energy into kinetic energy. Countries like Norway and China are the pioneer of EV technology.
It is pertinent to note that even though India does not have a first-mover advantage in the EV segment, it is also not the last one in the race. In fact, there is a huge potential in EV which is still untapped. Acknowledging this potential, the Government of India (GoI), has taken various steps in order to create a favourable environment for the development and adoption of EV at a mass level. The GoI, as against the other developed nations, has focused on Public transports, two-wheelers, and three-wheelers instead of passenger vehicles. The GoI has used the carrots and sticks approach for promoting its Capex growth agenda in the instance of EV.
Benefits – Carrot Approach
Therefore, for enabling a conducive environment for electric vehicles, the benefits are provided at different levels for different aspects. These benefits can be broadly classified into three categories – Capital incentives, Tax incentives, and other policy incentives. The Department of Heavy Industry (DHI) under GoI, is administering the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME India) Scheme for promotion of adoption of electric/hybrid vehicles in India since 01st April 2015[1]. Currently, Phase II of the FAME India Scheme is being implemented for a period of 3 years from 01st April 2019 with total budgetary support of Rs. 10,000 crores[2]. Under this scheme, the DHI will aim to support through demand incentives. The scheme also provides for the setting up of charging stations. This Capital support will surely provide an impetuous incentive to the industry to scale up production with improved technologies. Next, in the line of incentives are the Tax incentives. Under the GST regime, the tax rate on EV has reduced from 12% to 5%[3] as opposed to traditional ICT vehicles, wherein, the GST rate is 28% plus cess. It is pertinent to note that such a lower rate of tax is available only on exclusive EVs and not on hybrid vehicles. A hybrid vehicle has a traditional combustion engine along with a smaller lithium battery and Electric motor as compared to an exclusive EV. The GST chargeable on the hybrid motor vehicle is 28% (like other ICT vehicles) along with the additional cess, thus making the hybrid vehicles a costly affair in comparison with exclusive EV. On the direct tax incentives front, to encourage the consumer demand, the finance ministry in the budget of 2019-20, provided for an additional income tax deduction of INR 1,50,000 or the interest payable on loan taken for the purchase of EV, whichever is lower[4]. The rationale for allowing such income tax deduction is to develop a consumer sentiment in favour of EVs and thus creating demand for EVs. Further, the states like Delhi and Tamil Nadu have waived the Road duty of approx. 4% on EVs[5]. In the line of snowballing consumer sentiment, the government is making policy changes as well to make EVs a more attractive deal. In this regard, certain state-level manufacturing policies, which incentivize manufacturers of EVs, to manufacture indigenously has been introduced. The coming of TESLA[6] in the state of Karnataka is an example of such a state-level incentives sops and deliberations with the industry. Another major policy implementation in this regard is introduction of PLI scheme in relation to EVs. GoI, though, DHI has approved the proposal of the Production Linked Incentives Scheme ‘National Program on Advanced Chemistry Cell (ACC) Battery Storage for achieving manufacturing capacity of Fifty (50) Giga Watt Hour (GWh) of ACC and 5 GWh of “Niche” ACC with a budgetary outlay of Rs.18,100 crore[7]. ACC is a storage technology that can store electric energy into chemical energy and convert it back into electric energy. A typical PLI scheme aims at incentivising the manufacturer about 5-6% of the total incremental sales over the period of the policy (detailed guidelines are awaited). Thus, though PLI scheme, government has attempted to target the core elements of the Electric Vehicle, thus going beyond the cosmetic additions made in the name of manufacturing. Further, manufacturers can also avail different benefits through the policies such as reimbursement of SGST by the state governments, Start-Up India, wherein, several regulatory and tax benefits are given to the company involved in any high technology sector such as EVs. Therefore, the government has attempted to boost EVs manufacturing by addressing the both demands as well supply factors.
Stick Approach
It is not only the carrots but the stick approach has also been used to ensure that EVs segment is not merely limited to ‘Consume in India’ or ‘Assemble in India’ but becomes ‘make in India’ in its true sense and spirit. It is for this reason, the GoI, though DHI, has implemented a Phased Manufacturing Program (PMP) to promote indigenous manufacturing of EVs, their assemblies/ parts. Under this Program, Customs duty on EVs imported in SKD and CKD conditions, Lithium-Ion Cells, and other accessories have been increased[8]. The intention for such an increase in customs duty is to substantially improve the value addition and capacity building within the country.
Problems
Therefore, from the above discussion, it is clear that GoI is providing series of incentives through different channels to create a ripple effect in EV manufacturing. This will help the government on reducing carbon emissions and import dependence on oil-producing countries. However, certain issues need to be resolved for smooth transitioning from traditional vehicles to EVs. One of the greatest challenges in the full indigenous development of EV is that it required a Lithium battery, of which India has negligible reserves. Therefore, it is again dependent upon the imports, thus only shifting the import source and not really reducing the import burden. Another issue that is a major obstacle in the development of EVs is the few charging stations, which is a major obstacle in encouraging consumer demand.
Suggestions
It is suggested that to overcome such shortcomings, the GoI along with other consumer incentives should also focus on developing a conducive environment by establishing more charging stations for the proper functioning of the EVs. In this regard, it is suggested that the Government should develop a robust charging stations infrastructure. Further, to reduce dependency on the import of Lithium batteries, it is required that a proper infrastructure including incubators should be developed for research purposes to find import substitutes.
Conclusion
Thus, a balance would need to be struck, which will not only catalyse a home-grown EV ecosystem but also lead the way for sustained growth and development.
[1] Notification No. SO 830(E) dated 13.03.2015 – Scheme for Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India – FAME India.
[2] Notification No. SO (E) dated 08.03.2019 – Scheme for Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India Phase II (FAME India Phase II)
[3] Notification No. 12/2019 – Integrated Tax (Rate) dated 31.07.2019
[4] Section 80 EEB of Income Tax Act , 1961
[5] Delhi Electric Vehicle Policy, 2020 and Tamil Nadu Vehicle Policy 2019
[6] https://www.reuters.com/article/tesla-india-electric-idUSKBN2AD0MJ
[7] https://pib.gov.in/PressReleasePage.aspx?PRID=1717938
[8] Notification on Phased Manufacturing Program dated 06.03.2019 read with NN 21/2021- Customs dated 31.03.2021
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