Distributive policy

FM must focus on a long-term policy to promote investments and financing of electric vehicles

The Indian electric vehicle (EV) market is in its infancy and is expected to grow at a compound annual growth rate (CAGR) of 90% over this decade, reaching $150 billion by 2030. Market penetration in EV sales is around 1.3% of total vehicle sales in India in 2020-21 and is expected to grow faster in subsequent years.

India’s shift to electric mobility could help the country save nearly a gigatonne of carbon dioxide emissions by 2030, bringing it closer to meeting its COP26 commitment. Therefore, the 2022-2023 Union budget should focus on the long-term policy to promote investment and financing in the electric vehicle space.

India has a unique opportunity to electrify its vehicles and become the global manufacturer of electric vehicles, thereby generating significant employment and having a positive impact on GDP. Budget allocations are expected to increase domestic manufacturing capabilities, such as the Production Linked Incentives (PLI) program to spur the growth of the electric vehicle industry.

Several government initiatives have been observed over the past year which are expected to yield positive results for the sector in the coming years. The production-related incentives extended to electric vehicles and advanced technology components, the vehicle scrapping policy and the recent announcement of the PLI program for semiconductors are some of the important positive steps that can rejuvenate demand and resolve industry supply chain disruptions. However, continued government spending and stable fiscal policy in the upcoming EU budget can pave the way for the EV industry to improve.

Specific allocations are expected to reform the distribution sector, which remains engrossed in the challenges of late payments and the power dynamics of value chains. According to industry experts, the payment structure for nightclubs is the weakest link yet to be resolved. The government should provide a long-term solution that ensures sustainability so that large-scale manufacturing plants can attract investment.

Reducing tariffs on EV equipment such as lithium-ion cells and batteries will ignite the industry with an increased number of takers. The budget encourages integrated battery storage systems (BESS) through provisions such as the exemption of customs duties for the import of lithium-ion batteries, the introduction of storage purchase requirements for discoms and financial incentives for commercial and industrial customers using BESS energy.

There is a need for India to switch to cleaner fuel and lay the foundation for exponential growth in electric vehicles to reduce its carbon footprint. Segments of electric vehicle charging infrastructure are important for the adoption of electric vehicles in the country.

A report by consultancy firm RBSA Advisors estimates that India needs about 400,000 charging stations to meet the requirement of 2 million electric vehicles that could disrupt its roads by 2026. Charging infrastructure electric vehicles should stimulate specific government measures to meet this huge demand.

Industry body PHDCCI has suggested that the Department of Finance introduce a tax exemption for investments in electric vehicles. As many companies seek to establish a base in India for the electric vehicle sector, some benefits in the form of deductions or exemptions would go a long way towards realizing the vision of a pollution-free country by 2030. The 2021 law has introduces a new provision under Section 80EEB under which an individual is entitled to a deduction for the payment of interest of up to Rs 1.50 lakh on a loan taken out to purchase an electric vehicle from AY 2020- 21. This measure has been very well received in the EV space.

However, the lack of financing options for commercial drivers remains the biggest challenge in this journey. The attractive economy and government pressures have dramatically increased the demand for electric vehicles, while the critical growth vertical, the commercial electric vehicle segment, remains unwatched. EV funding is expected to become the single most important catalyst for EV adoption over the next few years. The budget therefore has the potential to facilitate ease of financing, especially for the unbanked segment.

The Government of India set up Phase II of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) scheme in 2015 to promote the adoption of electric and hybrid vehicles in India, with budgetary support of Rs 10,000 crore. The ambitious electric mobility program has been extended for two years until March 31, 2024. It is expected that the Union budget will introduce effective measures to use FAME II funds.

These specific policy interventions will accelerate economic recovery, create jobs, attract investment, increase exports and enable India’s energy security. The 2022 Union Budget sets expectations to give the electric vehicle industry a boost, catalyzing India’s steps to meet the ambitious climate change commitments unveiled at the COP26 summit in Glasgow.

(The author is the founder and CEO of Revfin-digital lending platform)

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Posted: Sunday, January 30, 2022, 1:59 PM IST