Recycling of lithium-ion batteries in India is estimated to create a $1,000 million opportunity and the Indian market for lithium-ion batteries is likely to grow significantly in the next five years. The annual lithium-ion battery market in India is estimated to increase at 37.5% CAGR to 132 GWh in 2030. Also, the market size of cumulative lithium-ion batteries is estimated to increase from 2.9 GWh in 2018 to about 800 GWh by 2030. Keeping pace with this growth trend, the recycling market of lithium-ion batteries too will expand.
With the deepening concern around the deleterious effects of deteriorating environmental conditions, the issue of “sustainability” has become one of the primary concerns which need to be addressed. To support the sustainable environment, one of the crucial steps that various countries have decided upon is the transition from the use of ‘conventional fossil consuming transport facilities’ to ‘new electric-driven transport facilities’.
In line with the same, the Government of India also decided to go electric in transportation facilities, and as per India Vision 2030, India aims to achieve 100% electrification of public transport and 40% of personal mobility. As per the report issued by India Energy Storage Alliance (IESA), it is expected that the market for EVs in India may hit over the 6.3 million marks per annum by the year 2027.
With the upswing in demand for EVs, demand for batteries is bound to surge. As per the research report published in 2019, about 65% of lithium-ion batteries are used in the telecom sector, data centres, streetlights, and other small consumer applications, while the remaining 35% market is held by the EV segment. The Report further added that by 2030, the share of EVs is expected to be 80% due to the government’s push towards electric mobility.
As per S&P Global research insights, the growing adoption of EVs and the need for EV batteries with higher densities is expected to raise the demand for lithium by more than three-fold in the coming future. For this, India might struggle in fulfilling the rising demand for lithium owing to the lack of prominent reserves for the manufacturing of lithium in India. For decades now, India is predominantly dependent on imports for the supply of lithium and spends a considerable amount of money on lithium imports, which acts as a drain to the Forex.
Moreover, the heavy import duty on lithium i.e., 20% adds to the cost of the importers in India. With the set-up of the first lithium plant in Gujarat in 2021, it is expected that such refinery plants will help in reducing import dependency and promote make in India, along with Atamnirbharbharat in the energy sector. However, to dig in further, India is far behind other countries like Bolivia and Argentina, which are having millions of tons of reserves for lithium with them.
Further, the Government of India has also taken due steps to support these domestic producers by providing various financial incentives like Niti Aayog, a think tank chaired by Prime Minister Narendra Modi, has proposed to provide output linked subsidy of cash which would be based on kilowatt-hours (KWh) of the cells sold, to reinstate their commitment to support the manufacture of batteries in India.
Set-up of these plants could help in the domestic production of lithium batteries, however, the dependency on imports for lithium supply will continue. Furthermore, heavy import duties on lithium add to the misery of the domestic manufacturers despite other financial benefits conferred under different policies.
Recycling: An alternative to import of essential component:
One of the most talked-about alternatives to the import of lithium is the in-house recycling of used batteries and using the extracted minerals again. Promoting the recycling of used batteries in India will not only help in reducing imports but will also help in saving the e-waste menace that could be caused by the disposal of used batteries in the environment. As per the report by MDPI, over 5 million metric tons of lithium-ion batteries are expected to reach End of Life (‘EOL’) by 2030. Large-scale recycling infrastructures will, therefore, be needed to ensure that the valuable but often toxic materials contained in lithium-ion batteries are not wasted and left for future generations to deal with.
There are several benefits associated with recycling of battery like recovery of key minerals viz. Nickel, Cobalt and Copper, reduction in waste generation and pollution, combating health hazards.
Despite the above-mentioned benefits, recycling of batteries is still an untapped area in India, which could come as a rescue in many ways to India. There are very few market players in India who have shown their interest in recycling, one of the major reasons for such disinterest is lack of the Government support for recyclers in India.
In October 2019, the Government of India announced that it is in process of framing a recycling policy for lithium-ion batteries under which tax sops will be offered to recyclers. The proposed policy also expected to have incentives for companies to set up recycling facilities and make it incumbent on producers to collect used batteries. Though, this policy has not yet been operationalised till date.
Challenges in battery recycling:
The high cost of recycling is the biggest hindrance in the setting up of a recycling plant. The average cost of recycling lithium-ion batteries in India is about Rs 90-100 per kg. Moreover, the need for research and development in technology for recycling, transportation, and management of resources asks for huge investments. As per the industry standards, it takes at least 5 years to recover the cost and start booking profits for a recycling company.
Moreover, soaring GST rates for battery waste i.e., 18% adds to the suffering of the recycling industry. While on the other hand, the Government has decided to reduce the GST rate on EVs from 12% to 5% on the pretext of moving to electrical transportation to save the environment, on the other hand, GST rate of 18% on recyclers, who could save the environment from e-waste hazard that might arise after EVs boom in the market, only questions the intent of the Government in long run.
In the absence of any specific financial incentives and policy measures from the government, it would be difficult for the battery recycling industry in India to commence.
Way forward and author’s comments:
The recycling and re-use of lithium-ion batteries is no longer an option but the need of the hour. Recycling batteries would help India deal with both the end-to-end manufacturing issues of batteries (ensuring less waste, avoiding environmental pollution, and reducing costs), while also dealing with the shortage of certain minerals in India by re-using as much as possible to displace imports.
The manufacturing, re-use, and recycling of batteries would lead to a circular economy where the manufacturers would either double up as recyclers or new entrants with the sole focus on recycling of batteries would enter the market.
To meet the increasing demand, the Government of India had also announced income tax exemptions for prospective Electric Vehicle (EV) buyers and reduced Goods and Services Tax (GST) on EVs from 12% to 5%; and is actively considering incentivising manufacture in electric vehicle segment by proposing a turnover based incentive. However, there remains a big gap in the present production and required production, which can be fulfilled by the recycling of the batteries.
Although there is awareness around recyclability and reusability of batteries, this market would pick momentum only when the Government rolls out better financial incentives for the recyclers in India. Tax-free years during the commencement of business, lower GST rate on recyclers, output-based financial assistances are few steps that can give a kick start to the recycling industry in India.
Few of the suggested fiscal measures that could help in boosting the recycling industry in India is listed below:
Financial measures:
- Capital grants and other forms of financial support by the government in the form of interest-free or low-interest loans, subordinate loans, operation, and maintenance support grants, and interest subsidies, etc., could be announced to support the recycling industry.
- Incentive-based on the recycled turnover of batteries could be provided by the Government in the initial years of set up of the companies, which will help the companies in recovering their huge investments.
- To discourage the import of lithium and encourage domestic recyclers, cashback can be offered to the customers buying from domestic recyclers.
- The Government can incentivise the recyclers by reducing the applicable GST rate on recycled batteries from first use battery GST rate of 18% to 5% or NIL rated. A special scheme for recyclers to get registered or to claim a refund or to file a return etc. could be provided.
All these measures if taken now would help India streamline and formalize the processes to ensure proper disposal and recycling of lithium-ion batteries in a sustainable and cost-effective manner which in turn would meet the growing demand for Lithium-ion batteries.
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(Parul Nagpal is a Director with Indirect Tax practice of Ernst & Young and is a part of the Infrastructure, Industrial & Consumer Products unit; and has over 12 years of experience in indirect taxes.)
(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Autofintechs.com. 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.)
