India and the EV dream

In 2016, India joined most countries in the world to sign the Paris Agreement and work to slow the process of global warming by dealing with greenhouse gas emissions from 2020. In the run-up to that, there are a bunch of commitments that the country has to meet in order to decrease its carbon footprint.

One of the things the government has promised is to cut vehicular pollution. According to government data, India had 210 million registered motor vehicles as of March 31, 2015, so this is a huge ask. Rather than bringing down the number of vehicles, the Indian government, like many others around the world, has decided to move to relatively cleaner electric vehicles (EVs).

Last year, the government announced an ambitious plan to switch entirely to EVs by 2030. The goal was later changed to 30% of all vehicles. And that has been the story of India’s EV dream: ambition, vacillation, and dilution.

When the move to EVs was announced, cabinet ministers had spoken of the need to phase out polluting vehicles, and claimed that the government was working on an EV policy. But over the past couple of months, there’s been a change in the government’s tune.

In a press conference last month, Nitin Gadkari, minister for road transport, highways and shipping, said there is no need for a policy framework for EVs. A few weeks later, the government think-tank NITI Aayog is reported to have asked seven ministries (including Gadkari’s) to come up guidelines for EVs. These guidelines are expected to form the basis of the government’s ‘action plan’ on EVs.

Usman Naseem, Environment Pollution Control Authority (EPCA) member and Centre for Science and Environment (CSE) researcher, says that these ministries are mandatory stakeholders and have to work together to formulate the action plan. Reports say the ministries involved are those of heavy industries, power, new and renewable energy, road transport and shipping and highways, earth sciences, urban affairs, and information technology. “The task is divided between these ministries,” says Naseem. “Earlier, there was no coordination between [them].”

Does it matter if it’s an action plan or a policy? No matter what it is called, there is a lot that needs to be done in terms of infrastructure and manufacturing before India can have a significant number of EVs on the road. That said, an action plan will not have the same heft that a policy will, and that’s something NITI Aayog recognises. At a conference last week, the think-tank’s vice chairman, Rajiv Kumar, said India needs an electric vehicle policy and that the NITI Aayog is well-placed to develop it.

The chief reason for a policy on EVs is to sort out infrastructure issues. Under the Electricity Act of 2003, only power distribution companies can sell electricity. This can be a major roadblock for setting up charging stations for EVs.

If an EV charging station is considered a service, most stakeholders (regulators, power producers, etc) believe there will be no need to change the Electricity Act, says a recent note from Elara Securities. If these stations are seen as selling power, however, there will need to be a change in the act. There has been no clarification from the ministry of power on this so far.

In a white paper on EVs submitted to the government in December last year, the Society of Indian Automobile Manufacturers (SIAM), had said that the government needs a strong policy on EVs. It had proposed that the GST on EVs be brought down from 12% to 5%. It had also proposed that road taxes be fully exempted for EVs, as well as a one-time income tax deduction of 30% of vehicle price from total taxable income to individual purchasers, who have not availed any bank finance for the purchase.

Such initiatives will make buying EVs more attractive; “In the beginning, you are paying 30% to 40% more as compared to conventional fuel-based cars,” says Naseem. But, he adds, after five to seven years of use, the benefits of an EV will begin to be felt.

Goldman Sachs estimates that India will need $17 billion-$60 billion (moderate-hyper adoption) in investment to enable the EV ecosystem, with battery capacity and charging infrastructure forming the major chunk of this, supported by policy and product development.

“It is not about the infrastructure only,” says Rahul Tongia, Fellow - Foreign Policy, Brookings India, Cross-Brookings Initiative on Energy and Climate. He says there are other vital stakeholders, particularly manufacturers.

The Indian auto industry, the fifth largest in the world, produced a total 25.31 million vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycles in April-March 2017, according to SIAM data. At this rate, India needs to make more than 7.5 million electric vehicles in a little more than a decade to achieve the 30% target.

Currently, electric vehicles represent less than 1% of the total vehicle sales. There are 4 lakh electric two wheelers and few thousand electric cars on Indian roads, while more than 95% electric vehicles on Indian roads are low-speed electric scooters (less than 25km/hr) that do not require registration and licences, according to the Society of Manufacturers of Electric Vehicles (SMEV).

That said, car makers seem bullish about EVs. At the 14th edition of the Auto Expo held in February, manufacturers across the spectrum, from Mercedes and BMW to Maruti Suzuki and Tata Motors, had concept and electric cars on display.

However, these manufacturers are waiting for the government to clear regulatory hurdles and come up with a clear stance on infrastructure development for EVs. In an interview with Fortune India, Kenichi Ayukawa, managing director and CEO, Maruti Suzuki India, had said that while his company was ready to launch its electric car in India by 2020, the government has to prepare the infrastructure.

Also read: ‘Two years is a short time for first EV launch’

“In a third world country like India, I believe that things work on affordability and accessibility,” says Sohinder Gill, director (corporate affairs), SMEV, and global CEO, Hero Electric. Gill says that till issues like charging infrastructure are sorted, the government can consider pushing two-wheelers and other “low-hanging fruit”.

Given the lack of policy push, few manufacturers seem committed to actually make EVs, preferring to have their infrastructure in place and going ahead only when things are clear. Till then, say analysts, a good way to go electric is to start with public transport.

In December, minister of heavy industries and public enterprises, Anant Geete, had announced that the government will give Rs 437 crore subsidy to 11 cities under the FAME initiative (Faster Adoption and Manufacturing of Hybrid and Electric vehicles), for launching electric buses, taxis, and three-wheelers.

That sounds like a good start to the country’s EV ambitions, but given the flip-flops so far, it may be just another dream that will not fructify.