India's EV Policy - Should it be Protectionist or Open?
The NITI Ayog, Indian Government’s think tank has proposed a roadmap towards policy making for EVs in India. The report has highlighted that the key objectives of India’s EV Policy should be first, to reduce primary oil consumption; second, to facilitate adoption of Electric and clean energy vehicles; third, encourage cutting edge technology in India through adoption, adaptation and R&D; fourth, to improve transportation used by the common man; fifth, to reduce pollution in cities; sixth, to create EV manufacturing capacity that is of global scale and competitiveness and seventh, to facilitate employment growth in a sun-rise sector. This is an ambitious list of objectives being sought from a particular sector and its policy. These however, are not unachievable goals and considering that this sector is new across the world, India can aspire to create and lead in niche areas within the sector.
The policy that the Ministry of Heavy Industries brought out in support of these objectives was in the form of Faster Adoption and Manufacturing of Electric (and Hybrid) Vehicles Policy (FAME). The proposed policy is however short on delivering these lofty yet achievable objectives. The policy has allocated subsidies to the tune of Rs 14,000 Crores over a ten year period towards encouraging faster adoption of EVs. Phase I of the policy was completed on 31 Mar 19, with Rs 4000 Crores in subsidies allotted in this phase. While there was a significant year-on-year growth in the two wheeler (2W) EV segment in Phase I, the large scale adoption and penetration of EVs is nowhere close to the levels aspired for. The major challenges that were identified when the policy was launched still persist.
The balance between EVs, as compared to the available ICE automobiles on offer, is firmly tilted in favour of the ICE automobiles. The pricing of EVs by manufacturers is at least 30% higher than similar ICE counterparts because of obvious issues like sourcing the technology and components, providing the charging infrastructure and low volume of production. For example, an Ather EV Scooter costs Rs 1.2 Lacs as against Honda Activa which costs Rs 60,000. When faced with a choice, the consumer is most likely to purchase the ICE variant, Honda Activa, rather than the Ather EV Scooter. Such consumer choices will define the adoption of EVs in India and any policy proposed or implemented to hasten the adoption of EVs must directly impact this choice of the consumer.
The government, in the next proposed Phase of the FAME policy, needs to clearly seek to attack the bottomline adoption of EVs. This can only be done by making them competitively priced and equally capable as their ICE peers. For the government to be able to do that there is a need for the policy to be tweaked to ensure that the policy initiatives are based on the open market principles without any elements of protectionism. Only when the manufacturers can choose the most economical sources for the components in their vehicles, will they be able to price the product competitively. The policy imperatives that need to be adopted are, first, the government policy needs to provide tax-breaks and import duty reductions to EV components that our industry does not support with quality or quantity. If import duties on EV components are heavy, the same will impact the pricing of the product and directly impact adoption. One report studying the impact of opening up of FDI in the Automobile sector in 1991 brought out, “The production level of, the automobile sector has increased from 2 million in 1991 to 9.7 million in 2006 after the participation of global players in the sector.” Why should the expectation of the EV sector be any different from prior experience? The government will need keep the EV sector open to foreign investment and imports so as to encourage large scale adoption of EVs. Our companies need to get technology infusion, which comes