The Indian government isn’t ready to walk the talk on electric vehicles

Steep uphill drive.
Steep uphill drive.
Image: AP Photo/Gurinder Osan
We may earn a commission from links on this page.

The road to electrification of cars in India just got a lot bumpier. A day after a showcase of electric vehicles (EV) got off the ramps at the India Auto Expo 2018, transport minister Nitin Gadkari on Feb. 15 said India does not need a dedicated EV policy. Instead the government may come out with an action plan.

This, after the government missed the deadline to have an EV policy in place by the end of 2017. The framework was expected to address a number of issues involving infrastructure-creation and component-manufacturing for electric cars in India.

Earlier in February, when Quartz spoke to a handful of carmakers, an overwhelming number of them said they were waiting for the government to put out the policy before firming up their EV plans.

Now, in the absence of a policy, industry players have no clarity about what’s on the government’s mind. The Society of Manufacturers of Electric Vehicles (SMEV), an industry body, has reportedly sought a meeting in this regard with Amitabh Kant, CEO of the government think tank, NITI Aayog. Kant is spearheading the centre’s EV action plan. “The meeting is yet to be scheduled. We will reaffirm the need for a full-fledged policy,” an official from SMEV said, requesting anonymity.

Experts have already written off the Modi government’s proclamation that all new cars sold in India from 2030 will be electric as an unrealistic goal.

A policy shows clear intent

Companies like Mahindra & Mahindra (M&M) have been producing EVs in India for nearly a decade. So why the need for a policy now?

The Indian EV market is nascent, with annual sales of only about 25,000 units. The infrastructure ecosystem is even more underdeveloped. Charging stations are few and far in between, even though most fully-charged electric four-wheelers available in India cannot be relied upon to travel beyond 100-130 kilometres.

In order to achieve economies of scale across the supply chain, the industry was looking to the government to incentivise and facilitate the manufacturing of electric cars, parts, and charging infrastructure. The policy was expected to be a signaling document, showing the government’s commitment towards EV manufacturing.

“I think a policy would have been better. A policy gives a certain clarity in the minds of stakeholders. Action plans are something which can change, whereas a policy is hard-coded,” Santosh Kamath, a partner at KPMG, told Quartz. “A policy that gives clear measures and backs it up with clear incentives and mandates would have given stakeholders a more firm picture of the future.”

So, what are the grey areas that the government needs to address?

“One would obviously be infrastructure—how the charging infrastructure will develop. Second is manufacturing—how they want to support the manufacturing of EV components and EV systems in India. Third is two-three years of stable policy (on) taxation,” said Mahesh Babu, CEO of Mahindra Electric, the electric vehicle manufacturing arm of M&M.

If not a policy, the government needs to take decisive steps that signal intent, according to RC Bhargava, chairman of India’s largest carmaker, Maruti Suzuki. For instance, he said, re-working India’s Electricity Act is one of the obvious issues the government can address. The law currently does not permit entities other than state-run distribution firms to sell power and, as a result, carmakers would have to partner with them to set up the charging infrastructure.

“Lots of people in India, small-car owners, do not have facilities at home to charge their cars. What should they do?” Bhargava said. ”The government has to decide on (the Electricity Act) because they know infrastructure is important…if there are going to be charging stations put up everywhere, then how will those charging stations get paid for the technology, if they are not allowed to sell electricity? That doesn’t require a policy, it requires action.”

Besides, decisive policy moves will also help attract investments.

“We need initial investments. Investments will come only if there are some attractive policies in manufacturing,” Babu said. “It is not entirely with the central government, it also depends on state government incentives. So both need to be worked out. I would suggest a manufacturing-specific promotion policy.”

Currently, states like Maharashtra and Karnataka have independent policies, but a thrust for EVs is missing, Babu explained.

It also concerns automakers that, without a policy, the EV space may be vulnerable to the fickleness of policymakers. Such is the fear of inconsistency that manufacturers would be thankful even if current policies continue without disruption.

“If we have continued support of FAME (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India) and the tax structure of EV today, for the next two years continued, we are okay,” Babu said, referring to the FAME scheme launched by the government in 2015. Under the programme, electric and hybrid cars were given support by way of incentives. Its first phase comes to an end on March 31 this year.

In a joint study conducted with the US-based Rocky Mountain Institute, the NITI Aayog last year identified incentives that would boost EV manufacturing in India, Babu said.

India can always go the China way, Kamath suggested, and mandate that original equipment manufacturers (OEMs) dedicate a certain percentage of their annual production towards EVs. But carmakers want the carrot, not the stick. “We are not China, we cannot do what the Chinese do,” Bhargava said.

With the limited government funds, this is as good as it gets for auto firms, for now.

Nevertheless, carmakers are going ahead with their EV plans.

“If we run into issues and the government has to take a decision on it, we will go to the government,” Bhargava said, adding that Maruti Suzuki still plans to land its first EV on Indian roads in 2020.

Unrealistic as the Narendra Modi government’s vision may be, for M&M, the oldest player in the space, it’s now or never. Indian carmakers have to look for alternatives within the current policy framework, Babu said. M&M plans to invest an additional Rs900 crore ($138.8 million) in the next between three and five years towards EV manufacturing.

“India has a very high chance of becoming one of the largest EV markets in the world. So, you don’t want to miss that opportunity, right?” Babu said. “If we don’t start now, we start debating, we’ll be left behind.”