'The lion's share of funding will be to incentivise end consumers and build a technology roadmap.'

Ambuj Sharma, Additional Secretary, Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises, Government of India, in an exclusive interview with Autocar Professional's Sumantra B Barooah, explains how the government will allocate funds to promote electric mobility in India for a cleaner environment as well as build the eco-system that is crucial to build the industry and grow it. Read the interview to know all the details about the government's strategy to build the electric vehicle industry in India.

You have said that the finance ministry has approved Rs 800 crore for promotion of electric mobility in India, whereas the earlier stated amount was Rs 1,000 crore. Why the difference and how do you balance it up to Rs 1,000 crore?
This amount of Rs 800 crore is from out the planned fund for the 12^th plan, which is undergoing now till the period 2017. So two years, i.e. 2015-17 is under the 12^th plan allocation, which is Rs 800 crore. Over and above that there is an automotive cess fund. So under that we will be getting about Rs 200 crore over the next two years for electric mobility. So adding both will come to Rs 1,000 crore, if not more.

But if you go to the NEMMP, the envisaged investment figure was Rs 13,000-14,000 crore. But you also mentioned that the government won’t stop at Rs 1,000 or 800 crore alone. How do you plan to take it forward?
When the expenditure finance committee meeting was held, they generally supported everything including the total outlay also. But taking into account the present finance scenario of looking at fiscal deficits and government’s capability to finance new projects and schemes, it was decided that whatever outlay is there already under the (12^th Five-Year) plan will be supported.

In 2011-12, we had sent out the requirement of Rs 800 crore. That has been allocated now. As we go along and achieve it, suppose we utilise it in the next 1-1.5 years, then we will be given more funding. By that time, I also think the financial condition of the government is likely to be much better because GDP and all other indicators are on track for improvement.

You have also shared the broad contours of how this fund will be spent – infrastructure, technology road map, incentivising the end-consumer. Can you give us which part of that would get the lion's share?
The lion’s share will be on two things – one is incentive because without creating an adequate market base for these vehicles, no other investment will come in. Even if you provide the skillset to people to manufacture or repair EVs, if there is no sale, there is no absorption of even skilled manpower. It’s the same thing for technology – no technology will come unless there is a quantum of sale of vehicles. So about 60-70 percent share will go for incentives. About 20-25 percent share will go for a technology roadmap because you want to indigenise and localise a number of electric drivetrain parts which are currently being imported. Even battery management systems (BMS); India is very strong in IT but we do not have adequate local capacity at present in BMS. And then, pilot projects and charging infrastructure will take about 10 percent each. So maybe 60-20-10-10.

There is also a concern in the industry that unless the entire ecosystem is prepared, it would not be good enough to only incentivise the acquisition or lower the acquisition cost and entry barrier. But talking about developing a supplier base, for instance in India, there is not a single local lithium ion battery manufacturer. So are you looking at those factors also? If yes, how?
Yes, particularly for the critical gap areas, i.e. batteries as you said, we have set up a centre of excellence for batteries for electric vehicles, where we are bringing together leading players in India and abroad like ThyssenKrupp or Fraunhofer and one or two IITs locally and also all the major industry groups.

The industry side will give the requirement of technical specifications and assure demand that if we produce XYZ batteries at ABC cost, then they will be able to buy so many. Now since we have the incentive scheme in place, there will be a fairly well calculated demand-supply scenario.

On the other hand, we know that we cannot start from scratch, the cell and battery chemistry straightaway. That is a long 5-year, 10-year thing. So initially we want to go for a module. That also is about 30 percent value addition. From readymade cells stage we do the module, casing and the battery management. That itself is about 30-35 percent of the total value chain which we want to capture in the next one year or so. We have set up groups of technology people and industry people who are working at it. Initially our aim is to provide for two-wheelers quickly. Then we will upgrade for four-wheelers.  

When you say lowering the entry barrier to the end consumer, does it also mean that perhaps because of the structure of the Indian automotive industry, two-wheelers and three-wheelers will get maximum allocation of the fund?
They will get the maximum in terms of number of vehicles. But the quantum may not be maximum. The quantum may still be maximum for four-wheelers or even in buses because each bus may get Rs 40-50 lakh. If the bus operators, which are mostly in public sectors because of road transport undertakings, really catch on to this new technology, they may probably take the maximum share. And that is really desirable also because it is a public good. So the public at large will be benefitted and they will also become aware of clean and green technology. Actually our aim is to give more subsidies to public transportation – buses, autos and taxi fleet. These are the areas we would like to concentrate more on, to incentivise.

Also, when you allocate funds, would you also allocate funds to OEs or suppliers directly and do they have to raise an invoice and later on reimbursed?
Yes, they will have to extend the incentive upfront so the customer will get it at the point of purchase. So whatever incentive is there, it will already be deducted from the total cost and passed on to the consumer. That point of sale information comes from the dealer to the OEM. The OEM will claim on a monthly basis to the government and government will settle expeditiously.

With the aftermarket coming up, will the new car buyer get the same amount of incentive compared to a new car buyer of an EV, HEV or retro-fitment of hybrid?
For retro-fitment we have calculated a different business model. By and large, for a four-wheeler, for which there is a homologated retro-fitment kit available today, ARAI has also given a homologation certificate.

There is a different model because the cost is different – it comes to about Rs 80,000- 100,000. If I remember correctly, the incentive amount is around Rs 24,000-25,000. The remaining Rs 75,000 will be met through savings. We have calculated the payback period, which comes to around 8-10 months. It is very reasonable. The customer will also be readily opting for this kind of thing. That is why nowhere in the world, retro-fitment kits are given any incentives. But we have incorporated it because we want to improve the CO2 emissions levels in the existing vehicle parc.

So by and large, vehicles up to 5-6 years’ vintage can be easily covered under this and each vehicle has a life of at least 10-12 years. Thus, at least 50 percent of the life still remains. So the ambient environment would really substantially gain. Also, the fuel savings is likely to be around 20-25 percent under retro-fitment kits. That is on the lower side. Actually, the company which is manufacturing is claiming 35 percent. But taking into account certain real driving conditions, it will still come to 20-25 percent.

The quantum of incentive to the buyer of an EV and a buyer of a retrofitment will be different.
It’s different. The upfront cost of the retro-fitment kit and the payback is quite favourable. Actually we need not give a single rupee (as incentive) and it will still make sense because the payback period will go up by another 3-4 months. Instead of 10 months it may go to 14 months, which also is quite acceptable to the user. But we want to have this retro-fitment incentive to initially kick-start. This will not be there for larger numbers. It will cease after two years. So by that time, the companies are confident that they would have achieved break-even and get the economy of scale. Beyond that they will be able to do on their own.

Would the incentive for EVs also cover imported vehicles?
No, for completely built units, we have not provided any concessions on customs duty. On the components, there is already a list of 11 or 13 items like motors, batteries, etc, which are in the concessional import duty or zero import duty scenario. We have proposed for increasing this number of items from 13 to 24, which will cover practically 100 percent of the entire value chain of electrical components. And our idea is to ‘Make in India’. Compared to most of the foreign models which are there in western countries, they are not suitable per-se to the Indian scenario. There the average cost is something like Rs 20 lakh-plus. So even if you bring the zero duty, it will still be Rs 20 lakh and adding some logistics will bring it to Rs 25 lakh. At that price segment, even conventional petrol or diesel engine-powered cars are selling in very small numbers. We are not aiming at the niche market.