Budget 2021: Will Modi’s call for self-reliant India benefit the EV industry?

Time is right.
Time is right.
Image: REUTERS/Adnan Abidi
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Despite prime minister Narendra Modi’s lofty ambitions about electric vehicle adoption (EV) in India, the union budget for 2020 did not do much to for the industry. But with the recent calls for “atmanirbhar bharat” (self-reliant India), expectations from the budget for fiscal 2021-22 are riding high.

Finance minister Nirmala Sitharaman will announce the union budget for the next fiscal on Feb. 1.

Industry players feel the time is ripe to set “higher benchmarks” for the industry, especially after the world’s most valuable car maker Tesla announced its entry into India earlier this month. A great start, some say, could be if the government invested in building out EV infra such as charging stations, which remains the biggest challenge for EV adoption in the country.

India is estimated to become the fourth largest market for EVs by 2040. The Modi government has set a target that 30% of all vehicles sold in India by 2030 will be electric.

India’s EV plans without actions

Last year, finance minister Sitharaman delivered the longest budget speech in the history of India. Yet, the EV industry did not find a single mention.

The budget documents did, however, allocate $96.8 million (Rs644 crore) for the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India programme (FAME-India), a central government scheme to boost EV demand.

One major miss in the 2020 budget was not providing any direct benefit to the stakeholders. In 2019, the centre had lowered the goods and services tax (GST) on EVs from 12% to 5% and given an additional income tax deduction of Rs1.5 lakh on the interest paid on the loans to purchase EVs.

Outside of the budget, the government had in 2019 announced a $1.4 billion investment in setting up an EV manufacturing hub.

But so far, most of these announcements haven’t made their way beyond just paperwork. “A lot is yet to materialise in making a significant impact,” said Anantha Bhargava, founder and managing director, Enercent, a three-year-old energy platform, responsible for over 400 EV charging stations in the city of Bengaluru.

If India wants to achieve Modi’s flagship Aatmanirbhar Bharat, though, things will need to change.

EV opportunity in budget 2021

The industry believes the government can boost EV adoption in India by providing support in three areas:

Manufacturing: Over recent months, the Modi government has been rooting to increase manufacturing in India with its slogan, “vocal for local.” This gives the EV industry hope that there might be some incentives in store for them to manufacture components locally, said Vahishta Unwalla, a research analyst at credit agency Care Ratings.

The EV industry is eyeing announcements around monetary and tax incentives to encourage domestic manufacturing, which will help in reducing the cost of the end product. “The industry is looking forward to a 5% reduction in taxes on batteries and other components along with policies that drive EV usage, adaptability, and demand creation,” said Pankaj  Tiwari, CMO of Nexzu Mobility, a Mumbai-based EV startup.

However, the infra should not be just restricted to building more charging stations. “Major spending should be done on the infrastructure sector as a whole, especially on dedicated freight corridors and highways,” said Uday Narang, chairman of Omega Seiki Mobility, a New Delhi-based EV startup that provides electric three-wheelers to e-commerce firm for deliveries.

Research & Development: With the EV industry still in the early stages, players want the government to allocate funds for R&D. “We can have…weighted deduction on R&D expenses,” Unwalla of Care Ratings said.

Adoption: EV adoption is still quite low in India owing to the lack of infrastructure, hence the sector players think a policy around mandatory EV usage will help. “The policy around the must use of EV for delivery and hyperlocal companies, bolstered by tax benefits will be a welcoming move,” said Tiwari.

Will India’s EV players get what they want?

To fulfil the demand for strong EV infra and the monetary expectations around it, the Modi government first needs to focus on strengthening its clean energy sector, or else mass adaptation of EV will remain a distant dream, say experts.

“Given the inadequate electricity supply in parts of India and lack of affordable renewable energy, charging EVs will put a toll on the already stressed coal-powered electricity grid. Also, the average cost of an EV is more than double that of the vehicles running on traditional fuel,” said Nilesh Shah, chairman and managing director, Atlas Integrated Finance.

Another major challenge for EV sector remains to be the availability of EV batteries. “The government must provide a provision of easy finance and reduction of GST on lithium-ion batteries from 18% to 5%,” said Shah. The absence of lithium resources in India has forced the manufacturers to import lithium chemicals from China, Japan, and Korea. “Abolition of import duties on these components will be helpful to the manufacturers,” Shah added.

The higher price of EV vehicles also acts as a barrier to the industry. And at a time when the pandemic-triggered slump has already made a significant dent in the consumers’ spending power, buying an EV would be the last thing on a customers’ mind.

“The government needs to boost consumption by putting more money in the hands of people. This will boost the consumption and generation of the economic cycle which could help the industry,” said Narang of Omega Mobility. In India, the starting price of an EV four-wheeler is under Rs10 lakh ($13,687.15).