By Rupin Chopra and Shantam Sharma
As the world transitions towards a greener future, electric vehicles (EV) have emerged as a potential solutions to combat climate issues and reduce the dependency on fossil fuels. As the tech for EV’s has become more affordable, India’s EV market has also expanded to a value of USD 1,327.8 million in 2023, with the goal of having 30% of all cars sold in India to be electric by 2030.[1]
To meet this ambitious target, the Government of India on March 15, 2024, introduced the New Electric Vehicle policy[2], showcasing a significant step towards promoting the adoption of electric vehicles across the country. As per the new policy, the government will lower custom duties on certain electric vehicles for companies that commit to at least Rs. 4150 crore (USD 500 million) in investment in addition to building a domestic manufacturing facility in the country.[3] This article delves into the key highlights of the new electric vehicle policy, various initiatives taken by the government for the promotion of electric vehicles, and challenges faced in the adoption of electric vehicles in India.
Key Highlights of the EV Policy
- Minimum Investment:
As per the policy, electric vehicles manufacturers are required to invest at least Rs. 4,150 Crore or USD 500 million, while there is no limit on maximum investment. - Timeline for manufacturing:
The electric vehicle manufacturers will be granted three years to set up domestic manufacturing units for electric vehicles, with a requirement that at least 25% of the components are locally produced by the 3rd year and 50% by the 5th year, failing which bank guarantee will be invoked. - Lower custom duty:
Lower custom duty will be imposed on the electric vehicles which are priced at USD 35,000 or higher for a period of 5 years provided that the manufacturer sets up the manufacturing facility in India within a period of 3 years. - EV Import Limit:[4]
The total number of EV allowed for import would be determined by the total duty foregone or investment made, whichever is lower, subject to a maximum of Rs.6,484 Cr. (equal to incentive under PLI scheme). A maximum of 40,000 EVs can be imported, with not more than 8,000 per year, if the investment was of USD 800 million or more. Additionally, any unused imports limits from previous year could be carried over. - Bank Guarantee:
The Company’s investment must be backed by a bank guarantee instead of custom duty forgone. This guarantee will be activated if the company fails to meet the specified criteria for domestic value addition (DVA) and minimum investment outlined in the scheme guidelines. The guarantee will returned only if 50% DVA is achieved and the investment of at least Rs. 4,150 crore has been made, or to the extent of duty foregone in 5 five, whichever is higher.
Apart from the recent EV policy, the Government of India has taken various initiatives for the promotion of electric vehicles, some of them are as follows:
promotion of electric vehicles, some of them are as follows:
Product Linked Incentives Scheme (PILs)
This scheme was introduced by the Department of Heavy Industry on May 12, 2021. Under this scheme, the Government of India aims to attract domestic and international investors to invest in India’s Advance Chemistry Cell (ACC) manufacturing facilities. PILs are essentially company financial incentives to increase their output. This scheme offers various advantages to EV manufacturers. The overall payout of the scheme is Rs. 18,100 crore which will be paid over five years when the production plant becomes operational. PILs are essentially company financial incentives to increase their output. The scheme mandates that the manufacturing facilities must commence its operations within a two-year time frame to avail of subsidies.
FAME India – Phase I
Faster Adoption and Manufacturing of Electric Vehicles (FAME) Phase I was introduced in the Union Budget 2015-16 to boost electric transportation. Phase 1 of the FAME India commenced on April 1, 2015, and concluded on March 31, 2019, with a budget allocation of Rs. 895 crore. The main objective of the policy was to reduce vehicular emissions and dependence on fossil fuels. Phase 1 of the scheme assisted 2.78 lakh electric vehicles. Across the country, 465 electric buses were put into service across various cities/states. Over a span of four years, 520 charging stations and infrastructure projects were approved.
FAME India – Phase II
After the successful implementation of the Phase I. The Government of India introduced Phase II of the policy with aim to fasten the adoption of electric vehicles by reducing upfront investment cost. Initially, the scheme was launched for three years, it has been extended to five years, running from April 2019 to March 2024. The budget allocation for phase II has been increased to Rs. 10,000 Cr. Out of total budgetary support, about 86 percent of fund has been allocated for demand incentive so as to create demand for EVs in the country. This phase aims to generate demand by way of supporting 7000 e-Buses, 5 lakh e-3 Wheelers, 55000 e-4 Wheeler Passenger Cars (including Strong Hybrid) and 10 lakh e-2 Wheelers.[5] Additionally, the charging station will be established in metropolitan cities, smart cities, hilly and mountain regions, as well as cities with a population of over one million across the nation.
Battery Swapping Policy
The government of India intends to introduce a battery swapping policy. The main objective of this scheme is to standardize the standards of batteries which are to be used in the electric vehicles. This policy will help in the promotion of the electric vehicles as swapping a drained battery with a fully charged one is a more practical option than on the spot recharging of the electric vehicle which can take hours.
Special E-Mobility zone
The government of India intends to introduce special e-mobility zones for electric vehicles. Only electric or similar vehicles will be allowed to operate in these zones. This policy is prevalent in many European countries and China. The major benefit of this policy is that it will help in curbing the issue of overcrowding which is caused due to use of private vehicles. People travelling through these zones are required to travel through their own EVs or otherwise use public EV vehicles, which ultimately increase the market share of the EVs.
Challenges in adoption of electric vehicles
- Insufficient clean energy
A significant portion of India’s electricity is generated through coal burning. However, relying solely on coal for powering electric vehicles would contradict with the aim of reducing carbon emissions through EV adoption. During the 7th edition of the ETAuto EV Conclave[6] , the Hon’ble Minister of Road Transport and Highways of India, Mr. Nitin Gadkari, mentioned in his speech that the India is exploring alternative energy sources such as solar, wind and nuclear energy. Moreover, the government of India is actively investing in research and development in biofuels to accelerate the manufacturing of EVs. These initiatives, will lower the upfront cost of electric vehicles for the consumers, resulting in higher adoption of electric vehicles in India. - Charging Infrastructure
A strong charging infrastructure is essential for the widespread acceptance of electric vehicles, However, in India, the charging network remains relatively inadequate. As per the information of Ministry of Power, only 12,146 nos. of public EV charging station are operational across the country[7]. The scarcity of charging stations and lengthy charging durations present obstacles for EV owners, resulting in range anxiety and inconvenience. Establishing a comprehensive and a reliable charging network is important to incentivize greater adoption of electric vehicles. - Lack of standardization
Absence of uniform standards in electric vehicles technology presents a hurdle for the industry. Manufacturers of EV uses diverse battery chemistries and charging connectors leading to complexity in charging and leading to complexity in the development of charging infrastructure. Standardization initiatives are crucial to simplify the charging experience for the electric vehicles users.
Conclusion
In conclusion, India finds itself at a crucial stage in its goals for adoption of electric vehicles. The introduction of new EV policy, along with other initiatives by the government, signifies commitment of the government towards a green and a cleaner future. The new policy introduces significant measures aimed at promoting the adoption and manufacturing of electric vehicles in the country. Key highlights of the new policy include incentives based on investment and duty foregone, restriction on number of imports of electric vehicles and provision for bank guarantees to ensure compliance with the set criteria. Despite these promising initiatives, there are several challenges such as charging infrastructure, insufficient clean energy and lack of standardization which needs to be addressed. With the efforts from government and private stakeholders, these obstacles can be resolved paving the way to faster electric vehicles adoption.
Ritvik Kashyap, Intern at S.S. Rana & Co. has assisted in the research of this Article.
[2] https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/mar/doc2024315324901.pdf
[3] https://www.indiatoday.in/business/story/government-approves-new-ev-policy-lower-import-tax-tesla-india-entry-plan-boost-2515249-2024-03-15
[4] https://pib.gov.in/PressReleasePage.aspx?PRID=2014874
[5] https://heavyindustries.gov.in/fame-ii
[6]https://auto.economictimes.indiatimes.com/ev-conclave
[7]https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2003003#:~:text=The%20details%20of%20charging%20stations,the%20country%2C%20as%20on%2002.02.
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