Sustained policy vision key to build India’s EV industry

The government’s FAME India scheme elaborates the steps it will take to realise its vision for hybrid and electric vehicles (denoted hereafter as ‘xEV’) mobility in India, as laid out in the ‘National Electric Mobility Mission Plan 2020 (NEMMP2020)’ document.

The NEMMP2020 itself was the outcome of the National Mission on Electric Mobility (NMEM) announced by the UPA government in its 2011 Budget. The FAME scheme articulates the policy interventions for the first phase of the Mission’s  implementation. It will last for two years and has an outlay of Rs 795 crore to fund technology development, demand creation through vehicle price subventions, pilot projects and development of charging infrastructure.

While demand incentives will be made available for buyers in the form of reduced vehicle purchase price, other areas of focus will incentivise the OEMs of such vehicles.

At the outset, it must be stated that given India’s imperatives for energy security and pollution reduction in cities, this is important, progressive and timely. The government itself admits in the NEMMP2020 document that its investments into this sector will yield 5X in returns in fuel savings for the country, and hence such a policy is not a subsidy ‘give-away’ but a valuable investment for India’s future.

So do subsidies work? The answer from India’s as well as global experience, is an unambiguous yes. For example, between late 2009 and early 2012 when the Ministry of New and Renewable Energy launched a scheme for EV subvention, sales trebled as compared to the pre-incentive period. Similarly, their removal led to a drastic reduction in sales. Global experience has been similar. However, a key to sustained growth is long-term policy stability. Automotive product development cycles typically last 3-4 years; it then takes 10 years of sales to obtain meaningful returns. The NEMMP2020 document recognises the need for a stable, long-term policy mechanism. However, the FAME scheme, with a limited two-year intervention period, has created uncertainty regarding policy stability. This could well dampen the industry’s willingness to invest into developing this category.

Hence, the government must to ensure the overall NEMMP2020 policy in implement at its earliest.  Secondly, let us compare FAME with global initiatives. Our scheme has earmarked an outlay of Rs 795 crore ($ 127.2 million) for promotion of xEVs.

In comparison, the US’s outlay is around $2.4 billion for demand incentives alone and another $25 billion for soft loans for R&D. France, which is smaller than India aims to spend $2 billion for charging infrastructure alone. China has earmarked an unspecified amount for four-wheeler EV subventions of $8,000 per vehicle. These investments are yielding high xEV growth rates for these countries. The US has reached a 3.5 percent penetration of hybrids and EVs, not a mean task for a market roughly five times bigger than ours. Norway is on track to achieve its 2018 targets for EVs this year itself. China and UK witnessed over 300 percent growth rates in 2014 for xEV sales.

Thirdly, we look at the subsidy amounts itself. Subsidies of $8,000 per four-wheeler were introduced in China in mid-2014. UK’s policies include a £5,000 subsidy for EV buyers. The US offers $7,500 in federal tax credit which can be combined with additional benefits offered by various states. Compared to these, the incentives in FAME scheme are rather low. All these global examples point to the fact that changing people’s habits and creating a sense of comfort in adopting a radical new technology demands sustained and large scale intervention for permanent impact. 

Another key focus area is coordinating central policy with state policies to promote charging infrastructure in collaboration with utilities, rationalising state taxes, running pilots and so on.

Promoting xEVs in their states will help clean up the air, build a ‘green’ image and attract investments into xEV technologies. While policy is one aspect of intervention, the other is execution. This is an area where we as a nation have traditionally been weak. However, in this scheme, the government has taken cognizance of industry’s concerns on timely reimbursement of subvention amounts passed on to customers and is working towards an e-enabled reimbursement claims and disbursal system. Similarly, transparent processes for evaluation of project proposals for pilots and R&D, quick action on setting up of Centres of Excellence in various domains of xEV research and funding them appropriately are key to rapidly building up indigenous technology and scaling this sector. 

The FAME scheme is the outcome of four years of deliberations and coordinated action between the Heavy Industry and Public Enterprises ministry, SIAM and  academic institutions. Kudos to the government for adopting a consensus-driven approach.We hope this will continue going forward. The government’s long-term oriented Auto Policy 2010 helped propel India into one of the world’s leading makers of affordable small cars. Similarly, with a stable policy regime, the NEMMP2020 vision as rolled out through FAME can potentially transform India’s xEV industry and establish it as a world-leading manufacturer of affordable hybrids and EVs.