The change
With pollution from fossil fuel-based vehicles worsening the air quality, the Budget provides several incentives to encourage faster adoption of electric vehicles (EVs). While customers got a tax deduction on interest paid on loan taken for EV, manufacturers were handed out a waiver on customs duty on imports of certain EV parts such as e-compressor, e-drive assembly, on-board charger and charging gun. Investment-linked tax exemptions and other indirect tax benefits have also been promised for setting up of mega manufacturing units for lithium storage batteries and solar electric charging infrastructure. A reduction in GST rate for EVs from 12 per cent to 5 per cent is also on the cards.
The background
India’s roadmap for EVs involves 100 per cent electrification of three-wheelers, four-wheeler (commercial) and public transport vehicles by 2030, while aiming for 40 per cent electrification in two-wheelers and four-wheelers used for personal transport. Recently, electrification of three-wheelers by 2023 and two-wheelers below 150 cc by 2025 is being considered.
The government has taken the EV vision forward in Phase II of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme, which provides demand incentives for EV purchases from April 1, 2019. Since the costs of EVs tend to be high, demand incentives, ranging from ₹20,000 per vehicle for buyers of e-two wheelers to ₹50 lakh per vehicle for e-bus buyers over a period of three fiscal years (initially), are being provided to bring down the end-price to customers.
FAME II encourages only electric technology and in that, only lithium ion battery or other newer technology battery-based vehicles. Considering that a wide network of public-charging infrastructure is the very backbone of any mass shift to EVs, the Ministry of Power issued guidelines and standards for the same in December 2018. A charging station at every 25 km on both sides of roads/highways is mandated. A phased roll-out over the next five years is envisaged.
The verdict
While the Budget did give a leg-up to EVs, it has fallen short of giving any big incentives for manufacture of EVs per se. It has instead focused on incentivising manufacture of parts such as lithium batteries. But then, despite prices moving down in the last few years, the battery still constitutes a good chunk of the cost and, therefore, the move cannot be faulted. Also, a few State governments have drawn up their own plans to encourage EV manufacture. Uttarakhand and Karnataka are examples. Given the early deadlines for adoption of e-bikes and three-wheelers, the ₹10,000 crore allotted to FAME II scheme to provide incentives for EV purchase could have been enhanced in the Budget . The focus on solar electric charging infrastructure is noteworthy. If charging were to be powered by fossil fuel-based electricity, the burden of pollution would only have been transferred.