India's journey towards becoming a major domestic EV hub
The country’s determination to achieve a smooth transition to a green and cleaner economy has witnessed significant fervour. Significant emphasis has been laid on the transition to a carbon neutral economy and the emergence of Electrical Vehicular (EV) systems. This is the foundational step in going beyond the ‘end of pipe’ solutions to control carbon emissions and initiating efforts to prevent vehicular pollution in the country. The upcoming projects and investments in this regard are envisaged to produce significant results in the country, in addition to encouraging good practices to reduce polluting effluents. This pivot to clean mobility has become the need of the hour, considering the focus on climate change and building sustainable development goals. In the recently released World Air Quality Report 2021, 35 out of 50 cities with the worst air quality were from India. In this context, the need for heavy reliance on carbon-neutral public transport by the residents, the promotion of electrical vehicles for personal and/or commercial purposes and the need to adopt other relevant cleaner mobility practices remain at the forefront of several policy discourses. Thus, in particular for the electrical vehicular systems, the coming few years remain pivotal as the Centre targets to achieve at least 30 per cent of the on-road vehicles to be electric by 2030.
Several schemes have been put in place to incentivise companies to build EVs and batteries locally, in order to boost supply and complement a myriad of benefits for EV buyers. The country has been doubling down on its EV ambitions, focusing on cultivating demand for EVs at the domestic forefront while also developing its own locally-produced EV manufacturing industry which could cater to this demand at home and of the neighbours. For instance, initially envisioned for three years, FAME-II got a two-year extension in June 2021 owing to a number of factors including the pandemic. It aims to support 10 lakh e-two-wheelers, 5 lakh e-three-wheelers, 55,000 e-four-wheeler passenger cars and 7,000 e-buses. As a part of this, the government has made a push for indigenous manufacturing with a number of automakers answering the call. While e-two-wheelers and e-four-wheelers receive significant coverage, the three-wheeled EV is an emerging key player in the market.
Three-wheeler EVs, such as e-autos and e-rickshaws, currently account for over 65 per cent of all EVs registered in India and cater to the huge demands of public transportation in the country. Two-wheeler EVs, on the other hand, are a distant second, accounting for over 30 per cent of registrations, while passenger four-wheeler EVs account for only 2.5 per cent, as highlighted by NITI Aayog.
Furthermore, the EV registrations data for various states highlight that Assam, Bihar, Delhi, Uttar Pradesh and West Bengal account for close to 80 per cent of all e-three-wheeler registrations, with U.P. accounting for close to 40 per cent of all registrations. Of these five states, Assam, Delhi, U.P., and West Bengal have formalised EV policies while Bihar has a draft policy with a final policy due to be introduced later in 2022. E-three-wheelers, such as e-rickshaws, are now a familiar sight in these States, having been created and manufactured locally. These cars, which cost between 1 lakh and 1.5 lakh and are made by a slew of local workshops and small businesses, have dominated the e-three-wheeler industry. Local manufacturers have created a truly Indian EV with its unique design suited to Indian commuter needs, thanks to financial aid from FAME-II. Legacy automakers have been struggling to compete with these local producers with their own e-three-wheeler solutions. These states' EV regulations, implemented as part of FAME-II, have played a key role in encouraging this growth.
The goal of these five states' EV regulations is to increase consumer acceptance of EVs while also boosting local manufacturing. All five states offer a complete exemption from road taxes and registration fees. In some circumstances, Assam, Delhi, and West Bengal have tied incentives to battery size (in kWh), with extra benefits such as lower lending rates and scrappage incentives. The state of Uttar Pradesh has taken a different approach to subsidies, providing 100 percent interest-free loans to state government employees for the purchase of electric vehicles in the state, as well as a 30 percent subsidy on the road price of electric vehicles to families with a single girl child. To encourage the sale of electric vehicles manufactured in the state, the state of Uttar Pradesh exempts all such vehicles from SGST. It has established incentives to encourage the manufacture of electric vehicles in the state. Bihar's draught electric vehicle policy follows a similar pattern, focusing on uptake and manufacture. These states have done very well in the FAME-II initiative and are on track to meet the 5-lakh e-three-wheeler target.
India's success in the e-three-wheeler industry is due to the development of both the demand and supply sides. Subsidies, tax breaks, and zero-interest loans have all helped to boost demand for these vehicles. These vehicles provide a low-cost mode of transportation for millions of people, are simple to maintain, and have low operating expenses, making them extremely popular among operators. In comparison to its two-wheeler and four-wheeler counterparts, the indigenous design enables for easy local manufacturing in workshops and small businesses, as well as making them comparatively straightforward to charge and maintain. This success in the e-three-wheeler market has been difficult to reproduce in the e-two-wheeler and e-four-wheeler markets, which face demand and supply issues. Evidently, two-wheelers and four-wheelers are primarily associated with personal use, customers are understandably hesitant to accept such vehicles due to the challenges accompanied with the models. The recent occurrences of e-scooter fires have further contributed to the fear. In India, finding dependable manufacturers with proven track records in the two-wheeler and four-wheeler EV space is difficult. This exacerbates the supply shortage, and there are few economical options available to consumers.
Thus, such challenges must be given special attention in future EV policies. Local manufacturing companies may lack the resources to invest in safety-focused design developments. The lack of effective regulatory control of these producers adds to the difficulties. As a result, future practice must include suitable design and passenger safety criteria. For effective implementation, future EV policies must take into account existing and growing stakeholders on both the demand and supply sides. Given the current state of EVs, India must learn from its e-three-wheeler success story in order to maintain its EV objectives in other areas.
Several experts have further underlined the significance of priority-sector recognition for retail lending in the electric mobility ecosystem. Financial institutions play a crucial role in accelerating the adoption of EVs in India and further supporting the transition to de-carbonised Indian road transport. The central bank’s public sector lending mandate has contributed extensively in improving the supply of formal credit towards areas of national priority. It aims to facilitate a strong regulatory incentive for banks and NBFCs to scale their financing to EV producers, manufacturers and emerging entrepreneurs. Furthermore, to maximise the impact of the inclusion of EVs, several suggestions to recognise EVs as an infrastructure sub-sector by the Ministry of Finance and the incorporation of EVs as a separate reporting category under the RBI have been made. Multi-prong solutions such as these will not only aid EV penetration and businesses, but also the financial sector and India’s 2070 net-zero target.
The government’s focused efforts to establish an indigenous EV manufacturing sector in the country with a vision to cater to the clean mobility demands of the domestic and other key global markets has been readily aligned with the initiatives and schemes of various state departments, agencies and policy networks to incentivise pivotal players in the sector, in addition to urging the upcoming entrepreneurship efforts. Overall, the sector’s performance is noteworthy. As further steps, focus can be laid on establishing frameworks for quality assurance and passenger safety, particularly for personal use vehicles, in the current and upcoming vehicles and to bring such aspects of the sector at the forefront of eminent sector-focused policy discourses.
This is co-authored by Ishita Sirsikar and Srijata Deb.