Saturday, June 10, 2023

Are electric vehicles coming of age: An Indian perspective


By Sukhpal Singh

Electric vehicles have been a phenomenon around the world for quite some time, and India too is thriving to adopt this change in the mobility sector. Is India, one of the most cost-sensitive and diesel-loving countries, ready for electric vehicles considering the high and robust infrastructure requirements for EV’s?

“A few years ago you could barely see an electric car at the Frankfurt Auto Show. “If you walked around talking about EVs, everybody assumed you were smoking something.”

~ Shai Agassi, environmental entrepreneur (2010)

These decade-old words from Shai Agassi hold true even today, however, the next decade seems to be the decade for the ‘Electric Vehicles’ (EV) and who would have thought that the tables would be turning the other way around until the EV cars sale accelerated with the sale of more than 3 million units in the Pandemic hit the year 2020.

But the million-dollar question is:

Q. What’s riding this optimism in the EV industry??

Q. What all factors are contributing to this increased interest in these non-conventional vehicles??

Q. And are we, Indians ready to for electric vehicles considering the high and robust infrastructure requirements for EV’s?

Well, to answer all the above questions, first we need to have a quick understanding of the sector.

An electric vehicle is one that operates on an electric motor, instead of an internal combustion engine (ICE) vehicle that runs by burning fuel or gases. These vehicles are seen as a possible replacement for conventional vehicles due to numerous factors, which inter-alia includes:

  • Increased oil prices making the running cost of conventional vehicles expensive
  • Increased pollution making us search for an alternative source of energy or renewable energy
  • Government support through policies and incentives to fulfill the climate change commitments
  • Change in consumer behaviour due to increased environmental awareness

The above factors are also responsible for the historic sales numbers of EV’s lead by major players like ‘Tesla’ and ‘Volkswagen’.

Present scenario in India:

India, being the 4th largest automobile market of 2019 is also willing to contribute to the global chain of electric vehicles which currently is being led by the likes of Europe, China, the USA, and Japan.

Presently, the electric Vehicle industry amounts to less than 1% of the total vehicle sales in India and the dominance by the conventional vehicles on the Indian roads is intact with just 0.4 million electric two-wheelers and a few thousand electric cars hitting the Indian roads.

The transport sector accounts for 18% of total energy consumption in India translating to an estimated 94 million tonnes of oil equivalent (MTOE) energy.

As per a report of the Bureau of Energy Efficiency (BEE), Ministry of Power, Government of India, the transport sector accounts for 18% of total energy consumption in India, which translates to an estimated 94 million tonnes of oil equivalent (MTOE) energy.

If India were to follow the current trends of energy consumption, it would require an estimated 200 MTOE of energy supply annually, by the year 2030 to meet the demand of this sector which at the moment, is being met mostly through imported crude oil.

Moreover, the road transport segment alone contributes an estimated 123 million tonnes of CO2 emissions annually, thus there is a need for alternative energy so as to reduce the emission intensity and to tackle the volatile International crude oil prices.

Thus, the adoption of electric vehicles would not only help India to fulfil the climate change commitments made by the Government of India but would also help the world to meet the shared climate goals and deal with the ever-increasing fuel prices.

Electric vehicle market in India is estimated to be Rs 50,000 crore opportunity by 2025.

Indian outlook and government initiative:

With the growth of around 20% in sales in FY20, the electric vehicle market in India is estimated to be Rs 50,000 crore opportunity by 2025.

The Indian EV industry has been on the back seat due to various challenges, however, the government of India has undertaken multiple initiatives to promote manufacturing and adoption of electric vehicles in India and one of the key requirements is the availability of adequate Charging Infrastructure.

In this regard, the Ministry Of Heavy Industries And Public Enterprises, Government of India, had launched a scheme, namely Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme, for promotion of electric and hybrid vehicles with an outlay of Rs 895 Crore, which was operational from 1st April 2015to 31st March 2019.

It was aimed at creating demand and creating charging infrastructure among other things and the demand incentive was available to buyers of EV in the form of an upfront reduced purchase price to enable wider adoption.

With a total demand incentive of around Rs 343 crore, about 2.78 lakh EVs were supported in the 1st phase of the scheme.

Based on the experience and success gained during Phase 1 of the FAME Scheme, the Phase-II of the FAME Scheme has been notified with the approval of Cabinet with an outlay of Rs 10,000 Crore for a period of 3 years commencing from 1st April 2019 to spur demand and create infrastructure.

Department of Heavy Industry will be responsible for the overall implementation of the scheme and removing any obstacle if arises during the implementation of the scheme.

Apparently, with the support of the government, electric vehicles have started penetrating the Indian market. Currently, there are 6 electric cars on sale in India. Of these, the Tata Tigor EV is the cheapest EV while the Mercedes-Benz EQC is the most expensive electric car in India. Upcoming electric cars in India include Jaguar I-Pace, BMW i3, and Mahindra XUV300 Electric among others.

Tax incentives

In addition to above, the electric vehicle segment is also loaded with certain tax incentives, which includes:

  • Incentivising the owners of the electric vehicle, being an individual taxpayer by allowing them a deduction for interest payment on Vehicle loan up to Rs 1,50,000 and allowing business expenditure beyond Rs 1,50,000
  • Exemption from customs duty on the import of the lithium-ion cells
  • Investment-linked income tax exemptions under Section 35 AD of the Income Tax Act to makers of components such as solar electric charging infrastructure and lithium storage batteries and other components
  • Slashing the GST from 12% to 5% on electric vehicles and from 18% to 5% on electric vehicles chargers

Though the government is pushing hard for the development of the infrastructure, however, it will take some time for India to prepare and to finally participate in this ambitious race of the EV and we are hopeful that India would surely be on the final lap.

Also Read: Electric vehicles: How clean is “green”?

(Sukhpal Singh is a Senior Manager with indirect tax practice of Ernst & Young and is a part of the Infrastructure, Industrial & Consumer Products unit.)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)


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