In a recent move, the Goods and Services Tax [GST] Council has reduced the tax rates on electric vehicles (EVs) and chargers effective August 1, 2019. The tax rate on EVs has been reduced from 12 per cent to 5 per cent while that on EV chargers has been reduced from 18 per cent to 5 per cent. While the tax reduction is expected to foster demand for EVs, the faster adoption of EVs may need more incentives, particularly a robust charging infrastructure, which remains a significant challenge. Smart Utilities invited industry experts to share their views on this recent development…
Will the recent GST reduction on EVs give an impetus to India’s e-mobility plans?
It is logical that if something is to be incentivised, we should not tax it simultaneously. On the one hand, we are giving subsidies while on the other, we are taxing it. Therefore, the reduction of GST is a good step. But whether it can accelerate EV adoption by itself, especially in the passenger car segment, is doubtful.
In India, EV adoption is at an early stage. Any new disruptive technological products and services get adopted by innovators and early adopters, towards the left on the curve of the law of diffusion. To enable EV adoption on a large scale, a push from the government and pull from customers is needed. The government provides the required push by way of various regulations. In the EV segment in India, the push has been provided in the form of several initiatives like Faster Adoption and Manufacturing of Electric Vehicles (FAME), the Electric Vehicle Policy by some of the state governments, the Smart Cities Mission, and Bharat EV, replacement of government vehicles with EVs, a separate EV tariff, lower GST, etc. In Budget 2019, the government reiterated its commitment to support e-mobility in transportation. The government’s vision to make India a global EV manufacturing hub is laudable as this will provide momentum to battery manufacturing, which is critical for making EVs affordable for Indian consumers. There is a need for measures like income tax rebate for individual buyers, reduction in GST from 12 per cent to 5 per cent (which has subsequently been approved by the GST Council), customs duty rationalisation/exemptions for certain products including parts of EVs, etc., which will further boost the EV sector.
The significance of the GST component can be seen in Norway. The Norwegian government exempted value-added tax of 25 per cent on internal combustion engine (ICE) vehicles. In the Indian context, GST on ICE vehicles is in the range of 28-50 per cent depending on the engine size and capacity, whereas in the case of EVs it is just 5 per cent. So, the fiscal support of India is at par with global leaders in EV adoption. We cannot complain about government support. The government has done its bit and it is the turn of other stakeholders – original equipment manufacturers (OEMs), battery manufacturers, financial institutions, charge point operators and above all customers – to provide the necessary pull by creating demand and ensuring supply.
- In view of the need to accelerate EV adoption, GST reduction to 5 per cent for EVs and charging stations is a welcome move. The India Energy Storage Aliance (IESA) also expects a similar reduction in GST for battery storage. Income tax reduction of up to Rs 250,000 ($3,500) on the interest of the loan to purchase EVs will also contribute to the EV revolution. The government aims to make India a global hub for EV manufacturing including solar EV charging infrastructure.
- Exemption from customs duties for EV components such as e-drives and onboard chargers will help reduce the cost of EVs on road. At the same time, the Phased Manufacturing Plan announced by DHI will incentivise manufacturers to invest in domestic localisation of EVs over the next three years.
- The allocation of Rs 100 billion under FAME II to reduce the upfront cost of EVs will have an immediate impact on the sales of two-wheelers, three-wheelers, cars and buses with advanced batteries.
What are some of the other policy incentives needed to address buyers’ needs?
The costs for all commercial vehicles need to be reduced. Subsidies will be needed for charging infrastructure in offices and institutions for two-wheelers along with incentives for battery swapping infrastructure for buses and trucks. Further, it is necessary to incentivise the development of indigenous storage technology and batteries in India. Foreign companies should be allowed to manufacture only with transfer of technology. These incentives will need to be carefully formulated after consultation. However, what is also needed is a proper policy and implementation framework.
To drive EV manufacturing and the growth of the EV industry, the government introduced the FAME scheme. It has also decided to support the manufacturing of advanced batteries, which will accelerate the adoption of EVs by bringing down the cost of batteries. Tax reduction is a major incentive for consumers as that will push EV prices to inch towards ICE vehicle prices. As emphasised earlier, creating a robust and smart charging network should be the focus. Under FAME II, the government has called for proposals for setting up 1,000 EV charging stations in the country, but this is not enough. Consumers will like to be assured of getting their vehicle charged at their preferred location, time and price to get over their range anxiety. This requires a robust, ubiquitous and friendly charging station network. As charging takes more time than gasoline fuelling, consumers would prefer to visit a charging station located in an interesting place, where they can do other activities while their vehicle is getting charged. India will have to add millions of charging points if all vehicles sold are electric in the future. This would require access to space, which is scarce in our country particularly in urban areas. Augmented electricity infrastructure would be required at the local network level even though at the national level this will not be significant. Unlike oil and compressed natural gas, EV charging depends on battery and electricity. An appropriate communication is needed between batteries and chargers, and chargers and the grid to ensure safety and reliability of the vehicle and the grid. For this, the charging infrastructure and the grid must be smart. There is a need for a greater and an urgent push for upgradation and strengthening of electricity infrastructure along with charging infrastructure.
- The central government aims to achieve higher adoption of two-wheeler and three-wheeler EVs. NITI Aayog is working on a draft EV policy, which proposes banning all ICE three-wheelers by 2023, and two-wheelers below 150cc with ICE by 2025.
- We at the IESA welcome such proposals and also recommend that the government take the necessary steps for incentivising the automobile and its component and battery industries to facilitate this transition. To achieve this, indigenous manufacturing of controllers and battery cells needs to be encouraged.
- The central government should work with the state governments to facilitate or create an EV manufacturing cluster. To develop an ecosystem for EV OEMs, component providers and battery manufacturers should develop their own facilities. On the other hand, NITI Aayog’s aim to transition to electric three-wheelers and two-wheelers also needs a robust charging infrastructure and reliable electricity supply from the grid.
What is your outlook for India’s EV story in the long term?
In light of the global developments, it is obvious that India’s transformation to electric mobility is both needed and urgent. But transition is an extremely complex matter. Therefore, it is imperative that a roadmap is prepared to enable informed discussion and rapid action. The transition should not be disruptive but cautiously incremental. Battery technologies are evolving and storage costs are declining. Therefore, we should not get locked into an expensive infrastructure. There should not be timelines like complete shifting by 2030 or certain categories of two-wheelers to become wholly electric by 2023.
The primary objectives for e-mobility are reducing oil consumption to decrease import dependence both in terms of high cost in totality and energy security; reducing air pollution in urban areas; and cutting carbon emissions. In general, there is little discussion on traffic congestion, which I believe is a significant omission in the debate. To examine how best these objectives can be achieved we need to understand what contributes to the above problems. It is evident that oil consumption is highest in buses, trucks and three-wheelers in the transport sector, and so is their contribution to emissions and air pollution. Therefore, all these categories should be our first priority. Unfortunately, in the general public discussion, the focus is on passenger cars and setting up of public charging infrastructure. This needs to be explained further as we look at each segment. India’s basic need for now and for the future is a massive increase in public transportation. This means that we need to increase buses by a factor of 10, that is, over 0.3 million by 2030, and more if possible. How will this happen in terms of manufacturing and procurement is what we should discuss. This growing industry is a great opportunity and India can become a global leader. Buses allow us to use battery swapping by setting up stations in bus depots. Battery swapping will have much lower capital costs allowing more than double the number of buses with the same funds. Batteries will also perform more efficiently. Consumers will pay operational charges per km. These need to be subsidised. It is imperative to make 5- and 10-year plans for the cities which are the most polluted and congested, rather than sanctioning some buses in an ad hoc manner. Meanwhile, plans for other cities should be made. The expansion of public infrastructure must include huge incentives for ride sharing through taxis or minibuses, and for meeting last-mile connectivity needs through various means and electric mobility.
The expansion plan must have an objective to reduce passenger cars on the roads by 50 per cent, even when their numbers are increasing. This reduction will automatically halve their oil consumption and emissions, etc. because idling time will be considerably reduced. We are in danger of getting gridlocked. Travelling to Delhi from any direction is a harrowing experience and this is set to increase dramatically. Plans for public transportation and sharing in such areas brook no delay. The focus on passenger cars is a complete aberration with the public mind possibly influenced by Western models, especially the larger-than-life image of Tesla. If all cars become electric and there is public charging infrastructure, traffic congestion and chaos will only increase. Public charging of cars is not easy. Besides, emission standards have been made more rigid recently and hybrids are a possibility. India’s auto sector is robust with a huge contribution to GDP, employment and even exports. Let us not disrupt it in the difficult economic conditions of today. I want to travel by an electric car but where will I get it charged? I cannot wait with uncertainty for charging stations. Thus, it will be difficult to convince consumers. These cars are also expensive and will remain so for some time. GST concessions alone will not incentivise buying. Let us, therefore, not have subsidies for passenger cars at all and let market forces determine the nature and pace of electrification. I would rather we stop diesel cars and SUVs for the present. Of course, buses, taxis and three-wheelers, including small goods carriers, can be given subsidy and GST relaxations along with some compulsions. Two-wheelers are a different cup of tea. Their number is increasing rapidly, as also are their oil consumption and emissions. Their charging is also easier. Therefore, we can have targeted timelines for a complete shift by 2030. Trucks must enter the debate. Swapping stations can be set up on all the highways. We must have a goal of having 50 per cent electric trucks by 2030, if not more. Further, how will we generate the power for charging? As solar acquires a greater share in the grid, future charging will need to be restricted to daytime or night-time avoiding peak hours. Battery swapping will facilitate this. If batteries perform better, the size will decrease and the range will increase. Pilots for battery swapping should be undertaken to fine-tune the process. Finally, we come to the most important question. How do we become a battery manufacturing country? This is critical and must have the highest priority. Our EV expansion must happen in tandem with the development of local manufacturing. We must not commit the same mistake we made during solar expansion, where we have become almost an entirely importing nation. Already, there are reports of large-scale import of cheaper Chinese batteries. There is talk of big battery units to be set up by Tesla and Chinese companies. That may not be a good idea. The future of EVs and the clean energy revolution depends on that.
The Indian economy is not insulated from what is happening at the global level. EVs, which occupied almost one-third of the vehicle market in the US in the early twentieth century, have been revived in the past two decades. More and more countries are adopting EVs, and India being a globally connected economy will reap the benefits of global adoption. It will achieve large-scale adoption in a shorter time span than other countries. We have to address the climate change problem if we have to make the lives of our future generation sustainable. This is forcing all of us to adopt more environment-friendly habits. This also includes transportation. Having committed to the Paris Agreement to reduce carbon intensity, the government has made it clear that it wants an EV future as road transport and energy production account for almost two-thirds of the CO2 emissions. As Tesla did for the US market, start-ups in India are poised to make a huge contribution towards EV adoption. Free from any legacy baggage, they are well positioned to offer pure EVs, particularly in the two- and three-wheeler sector. Traditional OEMs have also pulled up their socks and are making efforts to hold on to their market share. Hyundai has taken the lead by introducing Kona. Further, the electric version of Maruti electric cars can be seen on road, although in test mode. More than 10 EV models are slated for launch in the next 12-18 months. Tata Motors has just announced that it will introduce more models of the electric variant. Mahindra has promised to launch KUV 100 and SUV 300 with electric powertrain. Clearly, we can see that the Indian EV industry is well prepared to join the bandwagon and offer a pollution-free and affordable EV experience to Indian customers. With India poised to become the third largest automobile market in the world, none of the players would like to miss the huge opportunity. As more and more renewable energy, which is variable in nature, is being fed into the grid, the use of EVs will provide flexible load to balance the system. In light of these initiatives, it becomes clear that India will be able to achieve its vision of an all-electric fleet by 2030.
- The National Mission for Transformative Mobility and Battery Storage aims to provide a push to the entire e-mobility ecosystem, which includes EV manufacturers, charging infrastructure development companies, fleet operators and service providers. The goal of 100 per cent EVs has been revised to 30 per cent by 2030.
- Thirty per cent EV penetration by 2030 will be a huge achievement for the industry. Most of the developed countries have taken more than a decade to even get to 10 per cent EV penetration. At the same time, in the next five years, it is anticipated that with the continued drop in the price of key components, EVs would become cost-competitive with ICE vehicles even in terms of the upfront capital cost. So, it is highly desirable that Indian policymakers set an ambitious target for EVs.
- EV manufacturers prefer lithium-ion owing to its high energy and power density. India has also seen large-scale utilisation of lead acid batteries for e-rickshaws. One of the challenges in EV adoption in India is high temperatures. Thus, there is a growing research on batteries with high temperature tolerance.