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What can the government do to populate India's EV sector?

 

Over the last couple of years, the policy initiatives taken by the Government as well as technological development made by industry players to make electric vehicles (EVs) more affordable, have made e-mobility seem a reality from a far-reaching dream of the previous decade. In CY 2023, India’s EV segment achieved a historic milestone crossing 1.5-million-unit sales, marking almost 50% year-on-year growth.

What can the government do to populate India's EV sector?


Despite the several incentive schemes like Auto Production Linked Incentive (PLI), Advanced Chemistry Cell battery PLI and FAME II introduced by the Government, EV penetration remains rather low at only around 1% of total sales in India currently. While the growth rate in sales is the highest for passenger vehicles among various segments due to a small base, only a handful of buyers have shown the confidence to buy 4-wheeler EVs for private use. This is primarily due to range anxiety, high price of EVs and lack of adequate charging infrastructure. Hence, while there has been progress, EVs are yet to reach the tipping point for its growth at the moment in India.

It is high time we acknowledge that EV growth cannot be sustained on Government incentives alone. It needs to be supported by new technologies which genuinely reduce costs of vehicles, improve range of vehicles and develop newer approaches to charging infrastructure.

Battery Management System (BMS) along with battery components today comprise almost half the cost of EVs. This has resulted in high total cost of ownership (TCO) of especially four-wheeler EVs. Hence, development of domestic capabilities for battery manufacturing would be most important. However, low demand for EVs currently would hamper that. How do we break this Catch 22 situation?

To achieve economies of scale for battery manufacturing, it may be worthwhile to explore promoting ‘ICE+EV hybrid’ vehicles especially in the smaller vehicles segment. Currently hybrid vehicles do not get any tax and other incentives and such vehicles are mostly available in medium or high price segments. Incentivizing smaller hybrid vehicles can help create that critical mass for battery manufacturing in India and reduce cost of batteries, and develop newer indigenous technologies. This could take the form of reduction in GST rates on hybrid vehicles as is done for EVs today.


In order to incentivise small hybrid vehicles, such incentives could be aimed at vehicles of length less than 4 meters and engine capacity less than 1000 cc. State policies can provide additional incentives under Investment policies for this segment, the burden of which can be shared by the Central Government partially or fully under a centrally sponsored scheme. Covering hybrid vehicles under the PLI scheme could also be one way to incentivise such vehicles. Income tax incentives could be provided to buyers (individuals and businesses) of Hybrid vehicles through accelerated deductions for income tax purposes to accelerate shift towards hybrid vehicles.

The domestic capacities and newer technologies created for this ‘small vehicles hybrid segment’ then can possibly help reduce TCO for an EV in the coming years. It will also provide much required breathing time for the charging infrastructure to mature as hybrids do not require charging infrastructure.

The combined strategy of incentivizing battery manufacturing, research and development in battery technologies as well as tax and other incentives for small hybrid passenger vehicles may become a gamechanger for the Indian EV industry in the medium term till EVs achieve a critical mass.

The human aspect of the EV ecosystem is often neglected. The EV ecosystem would create new job roles which will be different from the ICE job roles. These roles will be created across the EV value chain from battery manufacturing to EV manufacturing, to maintenance and charging infrastructure. Special incentives for this upskilling could be given to OEMs and other players in the value chain, training/educational institutes etc. Higher deduction under Income tax for reskilling expenditure to OEMs, Centrally sponsored schemes under the Heavy Industries ministry or refinancing State Government’s expenditure in reskilling the labour in the service industry through its ITIs and other establishments, higher expenditure deductions from income tax for sponsoring/incurring expenditure for specified reskilling courses could be possible areas where tax concessions and incentives could be thought of.

EVs typically have a lower number of moving parts and therefore have lower maintenance cost. By one estimate the auto sector employs 37 million people in India and a shift to EV would mean disruption in employment for many of these people especially in the service and maintenance industry. Upskilling and reskilling of the labour in the organized as well as unorganized sector would prove to be a major challenge for EV growth and would need to be addressed now for a seamless growth of EVs in future.

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