For a smooth EV drive

The global automotive landscape is transforming amid growing concerns on reducing dependency on fossil fuels and mitigating carbon emissions. The paradigm shift to electrification from traditional Internal Combustion Engine (ICE) vehicles is gaining momentum in many countries across the world.

India, too, has taken steps towards adoption of BEVs (battery electric vehicles) with a focus on two and three wheelers, buses and public/shared mobility. This makes sense as these applications have relatively lower adoption challenges, represent high impact segments and are likely to see faster transition. Thus, the recent rejig of FAME 2 scheme with increased incentives for two-wheelers and steps for expediting procurement of buses and three-wheelers is a welcome step.

Strategic imperatives

Each country is unique in terms of resource availability, infrastructure readiness, energy mix, consumer price sensitivity and value proposition. Accordingly, there is no ‘one size fit all’ approach, the strategies and policies for technological transition should be aligned to each nation’s unique context and its priorities. Apart from global concerns driving the shift to electrification, India’s distinctive national objectives include securing sustained high economic growth anchored on self-reliance through local manufacturing and net import reduction.

The growth of India’s automotive industry, that currently contributes half of manufacturing GDP, will be important in realising the national objective of a $5 trillion economy by 2025 and creating new jobs. Hence, transition to BEVs must be accompanied with deep localisation of EV parts and avoid disruption to exiting investments in incumbent technologies.

As per IEA, during 2019-40 the energy demand and carbon emissions from road transport in India are likely to more than double along with oil import dependence increasing to 90 per cent. Despite growth of electric cars, energy use from cars may quadruple due to a five-fold increase in car ownership, resulting in 170 million new cars getting added. Hence, besides promoting more efficient transport options like railways and mass transit systems, India will need to promote mass electrification by leveraging all electrified technologies (xEV), alternate fuels and hydrogen fuel technologies for realising reduction of oil import.

To localise EV parts, it is crucial to ensure investment viability for which both supply-side incentives and high level of demand are required. The government has undertaken demand-side measures and announced supply-side incentives. Additionally, for investment viability a key strategy is to aggregate demand for EV parts across different applications and various electrified technologies including hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and BEVs as all these have common EV parts.

As HEVs and PHEVs have both an electric and petrol powertrains a PHEV can run as a BEV for certain distances and HEV run with ICE engine shut off for 40 per cent of the distance and 60 per cent of the time. Hence, besides delivering large fossil fuel and carbon emission savings these technologies are instrumental in creating a EV manufacturing ecosystem as they enjoy relatively better consumer acceptance and are not dependent on charging infrastructure.

Thus, globally a proportionate policy support to all electrified cars has helped create new EV parts manufacturing base and made the transition smoother.

For reducing fossil fuel consumption and carbon emissions, India is promoting fuel efficiency through CAFE regulations and is encouraging BEV adoption. But, as per IEA forecasts, this is not enough. Hence, mass electrification by promoting all xEVs should be encouraged along with alternative fuels and fuel cell technology for larger vehicles. However, currently, except for BEVs, GST rate advantage to consumers for adopting other xEVs is too little. In fact, as these technologies generally have higher costs, a low tax rate advantage inadvertently leads to higher taxation in rupee terms on such efficient and environmentally-friendly vehicles.

The higher upfront price is the biggest barrier to greater consumer adoption of these technologies. The logical and scientific approach is to adopt a merit-based taxation regime that provides all xEVs suitable preferential GST rate advantage over ICE vehicles or by following ‘carbon taxation’ or tax based on fuel efficiency.

Consequently, India can realise much higher national benefits. For instance, as per a BCG study, for cars, such inclusive policy support can more than double the fuel savings and carbon reduction. Moreover, with increased consumer adoption, EV part costs can decline rapidly due to scale thus further accelerating shift to BEVs. This can create the manufacturing base for future technologies like hydrogen vehicles once that ecosystem begins to mature.

To conclude, India’s energy transition requires complementary technology solutions rather than single ‘silver bullet’. As technology is an enabler, a means to the end and is ever evolving, hence policies must also evolve and be in sync with such changes. In such a complex and unique context, carbon-based taxation can be a transparent and highly impactful policy approach that will lead to a faster transition to mass electrification along with creation of local manufacturing ecosystem, holistic realisation of ‘self-reliance’ along with significant carbon reduction.

The writer is a former Secretary to Govt of India and architect of electric mobility in India

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