A shot in the arm for electric mobility

The recently announced Faster Adoption and Manufacturing of Electric Vehicles Phase II (FAME 2.0), a three-year ₹ 10,000 crore initiative by the Centre, is a laudable effort by the Department of Heavy Industries.

How is FAME 2.0 policy tailor-made for our needs? India can ill-afford the same level of generous subsidies per vehicle that higher income countries offer for EVs. But does this suggest a paradox – for, if reducing pollution and petroleum consumption is hard with high subsidies, how could one expect better outcomes with lower subsidies?

Certainly not. The key is in recognising that replacing a fossil-fuel vehicle that is driven a lot will reduce both petroleum and pollution more relative to a vehicle that is driven less.

From this perspective, whereas the priority clearly ought to be public buses and even taxicabs rather than pure private-use cars, policies the world over continue to focus simply on subsidising vehicle purchase.

Right model

That FAME 2.0 marks a departure from this costly approach, with buses accounting for the lion’s share of 35 per cent (Rs. 3545 crore) of the total outlay while that for cars is about 6 per cent, the bulk of which is for vehicles holding commercial licence plates. Having said that, it makes sense also to prioritise two-wheelers over four-wheelers; in India., the former outnumbers the latter by six to seven times.

Prioritising the two-wheeler segment over cars is justified both on equity and efficiency grounds. One could make similar arguments for putting three-wheelers (auto-rickshaws) ahead of cars. Again FAME 2.0 ticks the right boxes for allocation for two-wheelers and three-wheelers accounts for 20 per cent and 25 per cent of the budget, respectively. Therefore, the first salient aspect of FAME 2.0 is that it rightly puts electric mobility ahead of electric vehicles.

A second salient aspect is that subsidies for buses will be delivered per kilometre of actual bus operation. FAME 2.0 is perhaps the first EV policy the world over to deliver buses on such a basis, referred to as OPEX subsidies. Such subsidies can ensure self-selection of high mileage vehicles for EV adoption. This is akin to production of tax credits for wind and solar facilities which have led to greater generation per unit subsidy relative to investment subsidies and fixed price feed-in tariffs.

A central focus on buses (followed by two and three-wheelers) and OPEX subsidies are two stand-out features of FAME 2.0, and these are aspects that the rest of the world could learn from India. However, much works remains ahead in ensuring that this smartly designed policy is indeed successful in putting India on the path to a more sustainable transportation future.

For one, we need to ensure that there emerges a thriving, competitive domestic EV manufacturing sector that is able to deliver high-quality, low cost vehicles on a large scale. While evidence from FAME 1.0 is not encouraging there are some clear lessons. This includes a need for standardisation of bus specification along with aggregation of demand from across the entire nation in order to achieve scale economies; procuring these buses through large centralised auctions akin to how solar and wind electricity is procured by the Solar Energy Corporation of India and how Energy Efficiency Services Limited drove down the price of LED light bulbs today.

Second, even while subsidies for buses are to be delivered on an OPEX basis, the total subsidy per bus is capped at ₹50 lakh, which is both sizeable and generous. As deserving as cash-strapped public bus agencies are of these subsidies, there is a need for devising innovative mechanisms that would lead to healthy competition among public bus agencies for subsidies that results in less subsidy demanded both per kilometre and in aggregate per vehicle adopted.

Third, there needs to be policy coordination across the different central ministries, and also with state and city governments who actually will be utilising the buses.

There is a need for coordination between the Ministry of Power, the Ministry of Road Transport and the Ministry of Renewable Energy for direct access to low-cost solar and wind generation.

The writer is Associate Professor, Institute of the Environment and Sustainability & Dept. of Urban Planning, University of California, Los Angeles