Policy and market synergy required for EV sector to thrive
The Indian electric vehicle (EV) ecosystem anticipates the rollout of the third phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME), which has in the previous phases along with state government policies steered the EV uptake. Like the global transition towards zero-emission vehicles (ZEVs), India stands at a critical juncture marked by both promising advancements and persistent challenges.
As one of the fastest-growing automobile markets, India recognises the current significance of transitioning to electric mobility to achieve climate goals. The failure to meet the commitments under the Paris Agreement, not only jeopardises environmental sustainability, but also implicates nations in a shared failure with far-reaching consequences.
No doubt ZEVs, particularly EVs which are at the forefront of technological advancement, play a significant role in overcoming the perennial urban issues of air pollution and greenhouse gas emissions. It is tested in diverse vehicle segments and use cases, from passenger cars to heavy-duty vehicles.
However, critical challenges such as reliable charging infrastructure and high upfront costs continue to hinder widespread adoption, preventing EV technology from truly becoming the 'vehicle for the masses' as envisioned by enthusiasts and policymakers alike. Multiple visible and invisible forces, ranging from economic factors to infrastructure limitations, play pivotal roles in shaping consumer choices and governmental policies. We should realise that EV technology emerges not only as a crucial component of national interests but also as a local solution to pressing environmental and economic challenges.
The FAME schemes, notably FAME-I and FAME-II, have steered undeniably positive paths in nurturing the EV ecosystem. A major catalyst of widespread EV adoption is a reliable and accessible charging infrastructure network. The establishment of charging infrastructure across major cities and highways is strongly backed by private sector participation. These initiatives have significantly pushed the sale of ZEVs, fostered job creation, and opened new markets for small and medium-scale enterprises. The startup ecosystem, buoyed by governmental support, is buzzing with innovation, poised to seize the opportunities presented by the burgeoning EV sector.
The incentives under FAME were designed to lower the upfront capital cost of EVs. In addition to these direct purchase incentives, the government reduced the goods and services tax on EVs to 5% and provided an income tax deduction up to Rs 1.5 lakh on the interest of loans for new EV purchase, further lowering the cost barrier. Following the conclusion of FAME, the government extended subsidies for electric two- and three-wheelers under the Electric Mobility Promotion Scheme 2024.
Most state governments have rolled out EV policies, which have also played a crucial part in bolstering the manufacturing ecosystem and electric mobility uptake. Many of these policies coupled with FAME-II, offered additional incentives such as purchase subsidies, road tax exemptions, benefits for charging infrastructure setup, etc. With these efforts in the case of Delhi, EV penetration reached 11% of the total new registrations in 2023. Various initiatives have raised public awareness and educated consumers with campaigns about the environmental and operational economic advantages of EVs, thereby driving consumer interest and acceptance.
As per TERI’s analysis, India could achieve a 6% reduction in GHG emissions in the transportation sector by achieving 30% sale of EVs in new vehicles by 2030. EV penetration has been undergoing a significant transformation, especially in electric two- and three-wheeler and bus segments, which have proved their metal with 5%, 53%, and 5% of new registrations as EVs in 2023, respectively. However, other segments, particularly passenger cars and commercial vehicles, are lagging, and policy and market-driven synergies are required to boost these segments.
To reduce import dependence and boost the domestic EV sector, the government has launched the Production-Linked Incentive (PLI) scheme for the automobile and auto component sector as well as advanced cell chemistry manufacturing capacity. This scheme provides financial incentives to manufacturers based on their incremental sales and aims to attract investments in the EV supply chain, including battery manufacturing. The indigenisation of battery pack manufacturing along with reduced costs in future would further aid in overcoming the cost barrier.
The envisaged adoption could not reach its full potential, as only 68% of the total allocation was utilised under FAME-II. The areas of improvement in the EV supply side include the use of critical minerals in batteries and motors, emissions generated during EV manufacturing, limited localisation of battery manufacturing, and handling and recycling of end-of-life batteries which require measures to ensure resilient and secure supply chains. Continued support and collaboration between the government, industry, and other stakeholders will be critical to realise the vision of an electrified road transport sector.
Akshaya Paul, Research Associate; and Sharif Qamar, Fellow and Associate Director, The Energy and Resources Institute (TERI)
(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH).