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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.

Ather Electric Scooter

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 through joint ventures. Any policy which stalls imports in the EV sector in order to promote localisation, even before the local market has started to support EVs, seems counterintuitive.

Did converting public transport in Delhi to CNG lead to adoption of CNG in private vehicles? Not really !!

Second, the subsidies that the government provides will need to be available to all EVs without any caveats. The mass adoption of EVs will happen only when EVs are competitive when compared with ICE vehicles. The concept of leading adoption of clean vehicles with public transportation has been tried with the court mandated conversion of buses and cabs to CNG in Delhi. That has not resulted in all ICE vehicles in Delhi running on CNG. The contemporary discussion that adoption of EVs by cabs and buses will result in mass adoption is similarly misplaced. Third, The government needs to share the EV or battery related technology available with state agencies, with the indigenous players in the market. This is to ensure that the manufacturers have access to technology that is necessary for faster adoption of EVs. Even Tesla’s Elon Musk, a private entrepreneur, is willing to make his companies patents available for free. Therefore, Indian government agencies like ISRO, which has expertise in Li-Ion battery manufacture, should share it with all the indigenous manufacturers so as to hasten the adoption of EVs.

Fourth, there is a need for concerted and aggressive messaging campaign about EVs, their benefits and capabilities. Often the only messaging around EVs is about their zero emissions.

The common consumer is unlikely to adopt an EV because its only advantage is zero emission. While it may be argued that certain sections of society will adopt EVs for the altruistic purposes of zero emissions, there is a large growing, aspirational middle class (approximately 225 million) in India which is yet to own its first car. Such consumers will only look at comparative costs and capabilities when choosing between EVs and ICE peers.

Adequate understanding of EVs will be necessary at all levels, including showroom salesmen, to ensure that EVs compete on a level playing field with the well established ICE peers. A study in Scandinavian countries, which lead the world in EV adoption, indicated that 98% of the times, when choosing to buy a vehicle, the consumer chose an ICE vehicle because the showroom salesperson could not clearly demonstrate the strengths of the EV as compared to the ICE peer competitor.

In addition to all the above policy initiatives, the government will need to continue to subsidise renewable energy industry so that all the additional power requirements that are anticipated and required in the future can be supplemented by clean energy. If the additional power requirement continues to be supported though coal, which is our primary source, the adoption of EVs will not lead to reduction in carbon emissions. The reduction in carbon emissions will need to supported by cleaner energy generation mix for the country.

In conclusion, the government’s policy to encourage faster adoption of EVs needs to be structured on open market parameters. Indian market is large, and is a very attractive investment destination for major players. Only competition can ensure that the prices are low enough and the consumer gets the best benefits. India has a chance in the EV sector to follow an open market construct so that the price and product quality benefits are passed to the consumer directly, resulting in quick and competitive adoption of EVs.

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