Indian Government’s thinktank NITI Aayog has proposed to give $4.6 billion as incentives by 2030 to the companies for setting up advanced battery manufacturing factories in the country. reports Reuters. This move will promote local manufacturing of the EV batteries and electric mobility.
Currently, the Indian EV market imports the majority of its lithium-ion batteries from China. China accounts for 80% of the world’s lithium-ion battery cell production. This would help India to become self-reliant in a longer run. Also, if implemented, the incentive scheme will also focus on bringing down India’s crude oil import bill.
India spends a huge sum on importing crude oil from various countries. In the 2019-20 financial year, despite a slump of 9%, India’s total crude oil import bill was $102 billion. As NITI Aayog has said, if India can widely adopt electric mobility by 2030, the country can save as much as $40 billion by reducing its crude oil import.
The Government thinktank also forecasts that the domestic demand for battery storage could grow to 230 gigawatts in the next ten years. The demand for battery storage in India is currently less than 50 gigawatt. NITI Aayog also says that the Indian domestic battery market size would grow to $14 billion by 2030 from current $2 billion.
As the NITI Aayog’s draft proposal for the EV battery manufacturing incentives estimates, it would cost the battery manufacturing companies around $6 billion expenditure over the next 5 years to set up the battery manufacturing plants in India, with the support of Government subsidies. The draft proposal is likely to be reviewed by the cabinet in the coming weeks.
According to the NITI Aayog proposal, these incentives will include both the cash and infrastructure benefits amounting to $122 million in the next financial year (2020-21). The incentive amount would be increased annually afterwards, further proposes the Government thinktank.
At present, the import tax rate for certain types of batteries is 5%. This includes batteries for electric vehicles as well. According to the draft proposal by NITI Aayog, the import tax for batteries could increase up to 15% to promote local manufacturing of the battery cells. The proposal comes in the line with the Narendra Modi’s Government’s ‘Self-reliant India’ campaign.
Status of battery energy storage industry in India
The battery energy storage industry in India is at a nascent stage at present. Despite the huge market potential and the Government’s push for electric mobility, investors are little apprehensive to invest in the battery manufacturing industry in India.
Sales of the electric vehicles are minuscule in comparison with the conventional fossil fuel-powered vehicles. In the last fiscal (2019-20), only 3,400 electric vehicles were sold in India, in comparison with 1.7 million conventional passenger cars. The majority of electric vehicles being sold in the Indian market are attributed to the electric three-wheelers.
The demand for electric vehicles when it comes to the passenger vehicle and two-wheelers are still at a very nascent stage. People still rely mostly on fossil-fuel vehicles. When it comes to the EVs, they are pretty sceptical. The range anxiety, lack of EV charging infrastructure, higher cost of buying vehicles in comparison to the fossil-fuel-powered models play a key role behind this.
The battery being the most expensive component for the electric vehicles, local manufacturing of these would help the companies in saving money as well as in cutting down the dependence on fossil fuel also. This would result in reduced cost for electric vehicles, helping in increased demand from the buyers.
Interestingly, the NITI Aayog’s draft proposal for the EV battery manufacturing incentives comes at a time, when India has introduced stricter investment rules for the Chinese companies as an after effect of the border clash between the two countries.
Who will benefit from this scheme?
The draft incentive proposal by NITI Aayog, if implemented, could benefit the battery manufacturers like LG Chem and Panasonic Corp, two major companies in this domain. Also, this scheme would help the big auto manufacturers like Tata Motors and Mahindra & Mahindra (M&M) that have already started producing and selling electric cars. While Tata Motors has the Tigor EV and Nexon EV, M&M has e-Verito in its stable.
The two companies are also planning to introduce new electric vehicles. Besides them, there are several other automakers too which sell electric two-wheelers, who will be benefitted as well. The electric three-wheelers grab lion’s share in the total electric vehicles sales in the country. This segment and the stakeholders too will be benefitted from the scheme.