Electric Vehicle Policy Framework in India

Union government policies and schemes like FAME I and FAME 2, the PLI Scheme, and the

This story is contributed by Neeraj Kumar Singal

Union government policies and schemes like FAME I and FAME 2, the PLI Scheme, and the Scrappage Policy encourage the use of EVs and incentivize manufacturers.
About 50% of Indian States have state policies for promoting the use of EVs.
Concessions to users include a financial subsidy on purchase, exemption from road tax, registration charges, and low interest rates on loans.
Initiatives for bulk purchasing of EVs for the public sector, personal and public transport entities, and last mile delivery operators.
Infrastructure development for battery & vehicle manufacturing, charging infrastructure, and scrapping centers.

EV promotion policies at various levels in India

India is one of the world’s largest importers of fossil fuels, with crude oil imports totaling USD $125 billion (or INR 8,800,000 million) in FY 2019–20, up 42 percent from the previous year, and these imports are forecast to reach three-year highs in 2020. According to the 2020 World Air Quality Report , 22 Indian cities are among the 30 most polluted cities in the world, with transportation being the primary source of 2.5-micron particulate matter, which causes lung and respiratory problems. The average rate of new vehicle registration in India is 17% and expected to increase with rapid urbanization. The current trend not only puts undue strain on India’s foreign exchange reserves, but it also has negative impacts on health, such as a tenfold increase in air and noise pollution.

India’s E-mobility initiatives for pollution-free commercial and private transportation have prompted many established vehicle manufacturers and new entrants to begin manufacturing the e-vehicles in the last mile connectivity and bulk short/long distance transportation space. With the roughly 69,500 EVs comprising only 0.085% of the 80 million registered vehicles, the potential for growth in India is immense.

Manufacturing incentives for industry and demand side incentives for users include the Faster Adoption and Manufacturing of Hybrid and EV (FAME I & FAME-II), Production Linked Incentive (PLI) schemes and scrappage policy as well as the Make in India initiative, enhancement of e-charging infrastructure, and reduction of Goods & Services Tax (GST) on EV purchases. As of April 15, 2021, 38 OEMs (Original Equipment Manufacturers) have registered 114 models with the Department of Heavy Industry and around 69,500 EVs have been sold in India. Nevertheless, this represents only a small fraction of the number of vehicles sold, and most of these are two or three-wheeled vehicles. The 20 companies manufacturing electric two-wheeled vehicles sold only 25,600 units in 2020, down nearly 6 percent from 2019. None of the OEM’s have achieved economies of scale and EVs continue to remain expensive as a result.

The major policy initiatives by the Indian Government, which have sparked a renewed interest in EVs, are described here:

1) FAME & FAME II under NEMMP

In 2012, the “National Electric Mobility Mission Plan (NEMMP) 2020” was published as a follow-up to the Automotive Mission Plan (AMP) 2006–2016. However, the project did not take off as planned due to a variety of factors, including technology, materials availability, local knowledge and market acceptance. Under this plan, the first phase of FAME was implemented in April 2015 and extended through March 31, 2019. FAME II was implemented from April 1, 2019 for 3 years. FAME is primarily a demand side incentive scheme (60% of total funds) with a focus on technology development, infrastructure creation, and boosting demand through subsidies and pilot projects. Electric and hybrid technologies, including mild hybrid, strong hybrid, plug-in hybrid and battery electric vehicles, are covered under this policy.

FAME had an initial budget of INR 8950 million ($127 million) and provided a one-third discount on the difference between the price of an EV and a comparable petrol vehicle in cities with a population of more than 1 million people. The subsidies ranged from INR 1800 ($25) for a scooter to INR 6,60,000 ($9,400) for a bus (with a maximum limit of 100 buses per city) and included INR 150 million ($2.1 million) for charging infrastructure per city. The GST on the purchase of BEV was also lowered from 28% to 12%, with the goal of having EVs represent 30% of total vehicles by 2030.

FAME II has a budget of INR 100,000 million ($1.4 billion) , with approximately 86% going towards demand incentives and 10% toward the development of charging infrastructure. This phase aims to provide subsidies for 7000 electric buses, 55,000 four-wheeled passenger vehicles (including strong hybrids), 500,000 three-wheeled vehicles, and 1,000,000 two wheeled vehicles.

This policy also supports about 2,700 charging stations in the largest cities, other cities with over a million in population, smart cities, and cities in hilly states across the country, with the objective of having at least one charging station in every 3 km x 3 km grid. In addition, charging stations are planned for every 25 km on highways.

2) STATE GOVERNMENT EV PROMOTION POLICIES

Over 14 of India’s 28 states have finalized or are in the process of finalizing EV policies that support the national electric mobility policies. Andhra Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi, Tamil Nadu, Telangana, Uttarakhand, and Uttar Pradesh are among the states that have endorsed EV policies. Bihar, Gujarat, Himachal Pradesh, and Punjab are among the states with draft policies.

Nearly all state EV policies prioritize two- and three-wheelers, public transportation, and job creation. However, the policies differ in terms of targets, supply side incentives (manufacturing), and demand side incentives (consumer and charging infrastructure investments).

The policies include targeting the number of EVs (Kerala aims to have one million EVs on the road by 2022, and 6,000 e-buses by 2025); road tax and registration charge exemptions (Andhra Pradesh will provide full reimbursement of road tax and registration fees on EVs until 2024); viability gap funding in public transport vehicle procurement and operation, toll-charge exemption, and free permits for fleet drivers and free parking (Kerala); reduced GST and interest-free loans for OEMs (Karnataka); developing charging stations (Andhra Pradesh plans on establishing 100,000 charging stations by 2024); free charging or waiver of electricity duty (Gujarat); promoting charging of EVs using solar and other forms of renewable energy (Madhya Pradesh); enabling fuel stations to set up EV charging facilities (Maharashtra); promoting EV charging facilities in office and housing complexes and additional incentives against scrappage certificate of old vehicles (Delhi); single window clearance for setting up EV manufacturing facilities and development of battery disposal facilities (Uttar Pradesh).

3) EXTENDED PLI SCHEME NOV 2020

The Production Linked Incentive (PLI) scheme provides supply side incentives to domestic manufacturers based on incremental revenue. Foreign companies are invited to set up factories in India and local companies are encouraged to set up or expand existing factories.

The PLI scheme was enacted on April 1, 2020 to provide a financial incentive for boosting domestic manufacturing of cell phones and listed electronic components. A 4–6% incentive was provided to eligible companies on incremental sales (over the base year of 2019–2020) for a period of 5 years after the base year. Foxconn, Wistron and Dixon Technologies have already started contract manufacturing under the PLI scheme and, in the last 2 years, India has become the second largest manufacturer of mobile phones after China. In addition, the Indian government reduced the income tax rate for new manufacturing businesses to 17%, compared to 25% for other companies.

On November 11, 2020, the PLI scheme was extended to 10 additional sectors including the Automobiles & Components sector. The total budget for these programs is INR 1,960,000 million ($26 billion). On average, 5% of the production value is provided as an incentive, so the PLI scheme seeks to support $520 billion of manufacturing over five years, out of which INR 570,420 million ($8.1 billion) is allocated for automobiles and auto components, and INR 181,000 million ($2.6) for battery manufacturing. The Department of Heavy Industries will soon finalize the PLI-related guidelines for the automobile industry.

In this major push for EV vehicles, the PLI scheme for advanced chemistry cell (ACC) battery manufacturing was also approved on November 11, 2020. Since battery costs can comprise up to 50% of the cost of the total vehicle, an improved battery chemistry has the potential to reduce the price while using cutting-edge and safer technology. Manufacturers that achieve 60% value added within five years of project commencement will be eligible for the subsidy. Any new technology that evolves over the next 10 years is also eligible for the subsidy. Companies planning or initiating lithium-ion battery manufacturing projects in Gujarat include Tata Chemicals Ltd, the consortium of Suzuki Motor Corporation-Toshiba Corporation-Denso Corporation, Exide, and Amara Raja. Manikaran Power Limited plans to set up a lithium extraction refinery in Sanand or Dholera in Gujarat.

4) VEHICLE SCRAPPAGE POLICY

The Vehicle Scrappage Policy was announced in the Union Budget in February 2021. It aims to reduce India’s oil imports through greater deployment of new fuel efficient vehicles; to reduce environmental and noise pollution; to improve road and vehicular safety by removing old, unsafe and unreliable vehicles; to boost the availability of low-cost recycled inputs like plastic, steel, aluminum, steel, rubber, and electronics for the OEMs. Through the implementation of this policy alone, the auto industry has the potential to increase its revenue to INR 10,000,000 million ($142 billion) from the current INR. 4,500,000 million ($64 billion).

Provisions are broadly arranged into these three groups:

a) Registration and fitness tests:

Criteria for vehicle fitness will primarily be emission tests, braking, and safety equipment, per Central Motor Vehicle rules
Rules for fitness tests and scrapping centers to be applicable from October 1, 2021
Scrapping of government and PSU vehicles older than 15 years to start from April 2022
The mandatory fitness testing for heavy commercial vehicles to start from April 2023 and for other vehicles from June 2024
Increased fees for fitness certificate and test for commercial vehicles older than 15 years and non applying/issuance of fitness certificate will lead to de-registration
Increased re-registration fees for private vehicles older than 15 years and de-registration after 20 years if found unfit or registration not renewed
A vehicle failing the fitness test or failing to get a renewal of its registration certificate to be declared as ‘End of Life Vehicle’

b) Financial incentives:

Scrap value for the old vehicle given by the scrapping center up to 4–6% of the ex-showroom price of a new vehicle
OEMs to give 5% discount on the purchase of a new vehicle against the scrapping certificate
State governments to offer road tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles
No registration fee for new vehicles if scrapping certificate for old vehicle is available

c) Scrapping centers:

Encourage public and private participation (PPP) in opening Registered Vehicle Scrapping Facility (RVSF)
Encourage setting up of Automated Fitness Centers on a PPP model by the state government, private sector, automobile companies, etc.

The policy will be a major demand driver, with implementation focused on discounts for eligible users, infrastructure development for fitness testing of old vehicles, and a well-connected network of scrapping centers. Tata Motors has already planned the establishment of four scrapping centers in Howrah, Karnal, Hyderabad, and Greater Mumbai.

The above policies, combined with improved infrastructure and a shift in market acceptance of EVs, will enable India to make a dramatic leap in EV adoption and environmental sustainability.

Neeraj Kumar Singal has been an Indian entrepreneur for the past two and half decades. He is CEO of the SEMCO Group, a conglomerate with interests in Clean Energy, Real Estate, Railway, Defense, Healthcare, Forging and Power. He has a college degree from Hansraj College, University of Delhi. As a member of many organizations, such as YPO, HBS Club of India, Indian Angel Network, TIE, Neeraj is well connected globally, and loves to connect new people. Neeraj is passionate about renewable energy and has worked on numerous initiatives to develop a robust lithium-ion ecosystem. Founded in 2006 and headquartered in New Delhi, SEMCO Infratech is a solutions supplier for lithium-ion cell processing and packing machinery. The company had partnered with many companies on delivering innovative technologies to satisfy global customer demand.

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