Are electric vehicles sparking into life at last?

Sarthak Advocates & Solicitors | View firm profile

Authored by Abhishek Tripathi and Anura Gupta

There is little doubt that the future of mobility lies with electric vehicles (EVs). The environmental catastrophe that befalls most Indian cities every winter makes it vital for the government to push for faster adoption of EVs. Some reports indicate that the government wants 30% of all vehicles to be EVs by 2030. These are some of the measures that the government has taken to achieve that target.

In order to promote EVs, the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles scheme (FAME) was launched under the National Electric Mobility Mission Plan 2020 to support manufacturing of EVs and to ensure the sustainable growth of the sector. Phase 1 of FAME started in 2015 and ended in March 2019. The second phase is underway with about US$1.4 billion allocated over three years from April 2019.

The 2019 budget introduced the following measures to reduce manufacturing costs of EVs and make them more attractive to consumers: (1) the rate of Goods and Services Tax (GST) was reduced from 12% to 5% from 1 August 2019 on the purchase of EVs, chargers and charging stations; (2) an additional income tax deduction of ₹150,000 (US$2,090) has been granted on interest paid on loans taken out to purchase EVs, provided the loans are drawn down on or before 31 March 2023; and (3) import of certain EV components is now exempted from custom duty payments.

A proposal has also been put forward to invite global companies to set up manufacturing plants to develop lithium-ion batteries and set up charging infrastructure through a transparent bidding process, along with provision of investment-linked income tax exemptions.

The measures announced by the government aim to reduce the cost of EVs, and also at making India a hub for supporting EV technologies. Reduction of GST on the purchase price of EVs and their components will reduce the price gap between fossil-fuelled vehicles and EVs. Exemption from customs duty on certain EV parts, especially lithium-ion batteries, will lower the costs of manufacturing and will translate into lower purchase prices. Income tax reductions on loans taken out to purchase EVs may incentivize migration from traditional to electric vehicles.

There are still many obstacles to large-scale adoption of EVs. Ease of refuelling and the greater range of traditional vehicles give them obvious advantages over EVs. The absence of an adequate charging infrastructure makes EVs unreliable modes of transport for long-distance travel. Having a widely available robust charging infrastructure is central to the growth of EVs. The government has recently amended charging station guidelines, dispensing with separate licensing requirements and allowing charging station operators to choose which of the three approved standards they wish to adopt. The guidelines also specify the distribution of charging stations along ordinary roads and highways. Implementation of these guidelines, however, requires coordination between various government agencies, including state governments. Masterplans must be revised to accommodate charging stations, and the state governments will need to prioritize the establishment of charging infrastructure.

Also, until EVs achieve sufficient market presence, private charging stations may not be economically viable. To encourage private investment in charging businesses, governments may need to step in and provide incentives and subsidies. Relevant power distribution companies and the state electricity regulators will need to offer separate tariffs for the EV charging infrastructure. EV charging at maximum tariffs for domestic or commercial consumers may not be a realistic economic proposition. Therefore, to encourage charging of EVs at homes, offices and commercial establishments, providers will need to provide separate and more attractive tariffs.

Long term structural reforms will be required for EVs to displace fossil fuel vehicles. The power transmission infrastructure will need modernizing to ensure that it is able to withstand the demands of a complete transition to EVs. Nationwide, open access without the burden of cross-subsidy surcharges for EV infrastructure will go a long way in making them feasible and economically viable.

The government’s oil bill and the impact on its balance sheet should be sufficient to promote faster adoption of EVs, let alone considerations of long-term environmental benefits. With policy interventions and the creation of an adequate ecosystem to enable EVs to become commercially viable, the government can significantly accelerate technological advancements. Government policies have so far gently nudged the industry; much more now needs to be done to give it a hefty shove.

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