Abstract:
Despite various policy incentives and non-fiscal measures taken by the Indian government, numerous barriers prevent the widespread adoption of EVs. The uptake of electric vehicles has been slow for numerous reasons: high total cost of ownership (TCO), lack of robust fast-charging infrastructure, range anxiety among users, credit constraints, limited choice of vehicle models, and battery mishaps. Moreover, among the avenues for sustained growth and urgency in the achievement of SDGs, a full-fledged transition to electric vehicles (EVs) has immense potential for investment and rapid market growth. Through wide-ranging policies, India is on the path to a complete transition in this regard, but certain roadblocks (battery blasts and EVs catching fire, for instance) stand in the way. Highlighting these challenges is essential to ensure successful policy implementation.
Introduction:
Over the past few years, the Indian government has gained momentum in the transition to EVs through the introduction of various policies. These policies are driven by three major aims: energy security; reducing local air pollution; and curtailing greenhouse gas (GHG) emissions from the transport sector.
The urgency warranted by the climate crisis and the pressure of meeting SDG targets set for Sustainable Development Goals (SDGs) require India’s policies to bring about change faster. Moreover, they need to meet the target of 30% EV penetration by the year 2030 set by the Clean Energy Ministerial, of which India is a part. In spite of these developments, the uptake of electric vehicles has been slow. This is because several roadblocks – policy gaps, battery blasts, EVs catching fire, anxiety among buyers, a nascent market, among others – hinder the path to a smooth transition. Highlighting these challenges is essential to ensure successful policy implementation.
India’s EV Policies:
1. FAME I:
As a part of the National Electric Mobility Mission Plan (NEMMP) 2020, the Ministry of Heavy Industries and Public Enterprises under the Government of India formulated a scheme, viz., the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme in 2015 to promote the manufacturing of electric and hybrid vehicle technology and to ensure sustainable growth in the field. Phase 1 of this scheme, called FAME I, was launched in April 2015 and extended until March 2019. It focused on four key areas: (i) Demand Creation, (ii) Technology Platform, (iii) Pilot Project and (iv) Charging Infrastructure. 427 charging stations were installed by the government. ₹895 crores were allotted to cover the operations of FAME I. A total of 359 crores was spent to support nearly 2.8 lakh electric vehicles. Electric vehicle manufacturers and infrastructure providers benefited from the scheme.
Along with subsidies, grants for specific projects under pilot projects were sanctioned with financial support for research and development and public charging infrastructure. Under FAME I, 465 buses were sanctioned for various cities.
However, just 41% (359 crores out of 896) of the funds allotted were utilised. Even though the scheme failed to utilise the full amount of sanctioned funds, it provided considerable momentum for the future uptake of electric mobility in the Indian market.
2. FAME II:
In March 2019, the Ministry of Heavy Industries and Public Enterprises notified the FAME II scheme with an increased outlay of Rs 10,000 crores, which includes a spillover of Rs 366 Cr from FAME I. FAME II was made applicable from FY 2019-20 till FY 2021-22 and aims to leverage the buzz created by FAME I to boost the uptake of EVs in the country. The scheme is majorly focused on providing suitable incentives to buyers since 86% of the scheme outlay is reserved for demand incentives for the purchase of EVs. The scheme aims to support the sale of approximately 1.56 million vehicles across all categories.
SWOC Analysis of FAME II
Strengths and Weaknesses
Demand incentive increased by 50% to Rs 15,000 per kWh from Rs 10,000 per kWh previously.
Broader scope than prior EV policies, along with two primary verticals to stimulate the EV space: demand incentives and the creation of a comprehensive charging station network.
Additional state subsidies.
So far, 350 charging stations have been installed.
Immediate passing on of benefits to customers. Companies like Ather Energy, Okinawa, TVS reduced the prices of their models significantly.
Two-wheelers are the largest beneficiaries with Rs 10,000 crore in subsidies earmarked.
Absence of incentives for vehicle scrappage of ICE vehicles.
Absence of feebates that make ICE vehicles unviable. No increase in tax on such vehicles to discourage their purchase.
High-performance parameters that prevent low-range two-wheelers from being eligible for incentives.
Administrative bottlenecks regarding annual recertification of licence for incentives.
Exclusion of private four-wheelers from subsidies.
Strict requirements for indigenous components when the EV auto ancillary industry is at a nascent stage.
No centralised institution in charge of developing a countrywide charging infrastructure.
Opportunities and Challenges
Only 5% of the budget amount has been used till now, i.e. Rs 500 crore out of Rs 10,000 crore. Scope for further utilisation.
Structure for distribution of incentives.
Paving way for the future in case the scheme is not renewed after 2023.
Manufacturing lithium cells in India and less reliance on imports.
Securing trade deals amid current global uncertainty to access lithium, which is not available in India, in order to begin local manufacturing.
Navigating an increase in allocation to include more sectors.
Managing the automobile industry’s parallel investments in BS-6 standards and electric mobility.
In comparison to Fame 1, Fame 2 has made significant improvements. However, considering the potential of such a policy to improve India’s energy security, its balance of payments situation, achieve SDG targets and make its cities more livable, FAME II falls short of a trailblazing remodelling of the transport sector to create long-term impact. As is evident from the table above, numerous gaps in FAME II have hindered policy implementation, an elucidation of which is given below:
The incentives under FAME II are for purchasing new electric vehicles only. It does not provide any scrappage incentive to encourage ICE (internal combustion engine) vehicle owners to scrap their existing vehicles for EVs. Moreover, unlike China and some states in the US, there is no set EV mandate under FAME II, which has given rise to the following issues:
1. Insufficient development of charging infrastructure: In China, State-owned Grid Utilities invest huge amounts in the development of charging infrastructure; the EV mandate in the country provides investors with assurance in terms of continuity of business, higher utilisation of assets, and early payback.
2. Investment dilemma among automobile manufacturers: Currently, automobile manufacturers in India have hugely invested in ICE technology. India is transitioning from BS-IV to BS-VI standards along with electric mobility. In the absence of clarity on the uptake of EVs (through a mandate), it will be difficult for the automobile industry to parallelly invest in two technologies simultaneously with limited resources.
Since ICE vehicles have been in use for decades, considerable languidness among consumers makes them uncertain about switching to EVs. Moreover, FAME II makes no mention of a fee-bate that charges fees or imposes taxes on the purchase of ICE vehicles. For eg. Sweden has increased taxes on cars that create pollution, thereby discouraging consumers from buying vehicles with internal combustion engines, as they contribute significantly to noise and air pollution.
Under FAME I, two-wheelers with top speeds of up to 25 km/hr were eligible for incentives of up to Rs 17,000, and Rs 22,000 for high-speed ones. However, vehicles under FAME II need to have a minimum range of 80 km per charge and a minimum top speed of 40 km/hr to qualify for an incentive of INR 20,000. Such high-performance parameters come at a higher cost, which excludes a large section of society that is price-sensitive to EV purchases. Ather's 450X model, Revolt’s RE400, and Bajaj’s Chetal are all priced at more than Rs. 1.15 lakh. Avon E Star, with a range of 65km/charge and a top speed of less than 50kmph, comes at Rs. 60,000.
Additionally, to be eligible for demand incentives, Original Equipment Manufacturers (OEMs) are mandated to undergo a recertification process to obtain a certificate of ‘FAME II India Phase II eligibility fulfillment’ from approved testing agencies in India. Furthermore, the OEMs need to renew their certificates every year to claim the subsidy. This creates an unnecessary administrative bottleneck for OEMs. FAME II guidelines require OEMs to use a certain percentage of indigenous components to be eligible for availing subsidy. However, the auto ancillary industry for EVs is at a nascent stage. To have a large number of EVs on the road, a well-developed supply chain of auto components is necessary. In the absence of the same, the requirement of indigenous components acts as a barrier to procuring incentives. Further, the limited number of indigenous manufacturers of EV components has led to dependence on imports, thereby driving up the prices of EVs.
The uptake of EVs and the setting-up of charging infrastructure is a causality dilemma. FAME II allocated Rs. 1000 crore for developing charging infrastructure. However, there is no provision for setting up a centralised institution for developing a countrywide charging infrastructure.
PLI Scheme and its role in supporting FAME II:
To keep consumer demand up and drive faster adoption of EVs, FAME II subsidies may continue well beyond 2023. The EV sector requires such incentives to accelerate manufacturing and consumer adoption. In 2021, the government launched the Production Linked Incentive (PLI) Scheme to enhance the country’s EV manufacturing capability. A PLI scheme provides incentives to companies to boost domestic manufacturing. The government does this to make products more competitively priced, reduce a country’s dependence on imports, and generate employment.
While startups form the majority of the EV ecosystem in India, a large number of them are ineligible for the PLI scheme. This is because to be eligible for the Rs 26,058 crore incentives under the scheme, the manufacturer must have global earnings of at least Rs 10,000 crore and an investment of at least Rs 3,000 crore in fixed assets.
The incentives are purely percentage-based, with the government offering a maximum of 18%. This will be based on the incremental turnover of a company. The idea is to promote the development of technologies that are currently inadequate in India. These incentives can be availed simultaneously along with the Faster Adoption of Manufacturing of Electric Vehicles (FAME) scheme, among others. With the EV supply and value chain apparatus yet to be fully built, a PLI of this scale can help with rapid development.
Although the PLI scheme provides due recognition to the EV sector and supporting infrastructure, it favours the big players. This is because the scheme has outlined an incremental turnover of Rs 2,000 crore for OEMs to qualify for a 13% incentive, with the incentive rate going all the way to 16% should the turnover be more than Rs 4000 crore over a period of 5 years. An additional 2% incentive will be available only to those with an incremental turnover of Rs 10,000 crore or more. This is simply impossible for emerging EV startups to achieve in the given timeframe, especially at a time when widespread adoption of EVs is only slowly gaining traction. The scheme could be amended by making it more inclusive for startups and relaxing qualifying norms.
Moreover, with the growing 2-wheeler and 3-wheeler segments, there is a huge demand for supporting infrastructure like lithium-ion batteries and chargers, which are mostly produced by startups and small companies. The policy falls short of incentivising this part of the industry.
Conclusion:
India has taken a number of initiatives to promote EV uptake and manufacturing, as seen with the FAME and PLI schemes. Notwithstanding these measures, there is still scope for greater action on this front. The 17 Sustainable Development Goals (SDGs) set by the United Nations can be a reliable guide for this, providing principles that can catalyse successful policy implementation. In 2019, NITI Aayog forecasted EV sales penetration in India to be 70 per cent for commercial cars, 30 per cent for private cars, 40 per cent for buses, and 80 per cent for two and three-wheelers by 2030. These targets, if achieved, could lead to a net reduction of 14 exajoules of energy and 846 million tonnes of CO2 emissions over the deployed vehicles’ lifetime. This will help India fulfil its global commitments to lower carbon emissions and increase the use of cleaner sources of energy and transportation as required by the Nationally Determined Contributions (NDCs) under the United Nations Framework Convention on Climate Change (UNFCCC) and the EV30@30 campaign.
There is still work to be done to realise a future with all-around electric mobility. Capturing the benefits of FAME II, PLI, and other schemes and their intended ripple effects on India’s SDG targets and the electric mobility ecosystem will require the participation of many stakeholders—from the government to the automobile industry.
When FAME I was first announced in 2015, 30% EV penetration seemed to be a futuristic goal. With the launch of multiple policies that provide fiscal and non-fiscal incentives, the vision of a transformed mobility system for India appears within reach. This transformation will benefit the country by improving air quality, reducing oil imports, and creating jobs, among other benefits. Thought will need to be given to the system as a whole, taking into account the implications of new mobility models that will come along with this transition and the supporting infrastructure that will enable India’s shift to a shared, clean, and connected mobility system. While FAME II and other recent policy developments are an important step in motivating the transition to electric mobility, a lot remains to be achieved before India is on par with global frontrunners.
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