Russia’s war on Ukraine has had a devastating impact on the global economy. It has triggered an unprecedented energy crisis as prices of commodities such as coal, natural gas and crude oil have skyrocketed. With oil above $100 a barrel, policymakers in the country are faced with two questions: How to keep the energy prices down in the coming months, and how to ensure India’s energy security in the long- term?

Almost 85 per cent of India’s oil needs are transport-related. Therefore, rapid adoption of electric vehicles would not only help reduce India’s $120-billion crude import bill but also aid in meeting our medium- and long-term emission reduction targets.

India’s EV transition is already at a critical juncture. EVs, marked by their low operating costs, are turning attractive for many commercial cases such as food delivery services compared to conventional internal combustion engine (ICE) vehicles. According to the CEEW Centre for Energy Finance, in FY22, EVs formed 2.5 per cent of the total new vehicle sales compared to less than 1 per cent in FY21. Recognising the opportunity and the strategic importance of the sector, in 2021, India announced two production linked incentive (PLI) schemes to boost domestic manufacturing of electric vehicles and advanced chemistry cells. However, India’s EV transition faces multiple challenges, marked by limited charging infrastructure, lack of interoperability services, inadequate access to affordable finance and limited domestic demand. Therefore, a long-term roadmap is needed for a smooth transition.

First, the country needs to create a fast and slow charging infrastructure network. A widespread network would help alleviate the concerns around the range of EVs and allow for a broader application of EVs, not only within city limits but also for inter-city transportation. According to estimates by CEEW-CEF, this would cost around $3 billion by 2030.

However, the existing charging infrastructure suffers from low demand resulting in poor utilisation rates. Charging as a business is not profitable below utilisation rates of 20-25 per cent. To attract private capital for charging infrastructure, the Centre and State governments could consider the creation of a public capital pool to subsidise the initial setup cost. Such a move could encourage private players to invest as well.

Second, the regulator needs to set standards in line with global ones and ensure interoperability between stations and networks. Without interoperability, charging per vehicle would only be limited to a few charging points, unlike the petrol pump serving ICE vehicles across segments and brands. Further, the ministries could consider using the existing network of over 84,000 petrol pumps to work as battery swapping points. Such facilities could support battery replacement demand for the electric two- and three-wheelers and reduce range-related anxiety of customers.

Third, improve the availability of affordable credit for EV purchases. Access to affordable financing has been a significant reason behind the rapid growth of auto sales in India over the last two decades, with almost 80 per cent of ICE vehicles being purchased through finance. For EVs, the interest charged by banks and NBFCs is in double digits, and options available to customers are limited.

Credit support

India needs to develop credit support structures like limited period risk-sharing facilities to allow consumers access to affordable finance. Such a structure could partially de-risk the loans of the participating banks and NBFCs to fund new EV purchases. The system would be helpful, especially for individuals without formal income proof, who are likely to be the early adopters of the technology — example, food and courier delivery professionals. Such a facility could also help create a track record of EVs’ operations and loan repayments, allowing other financiers to enter the EV loan market.

Fourth, the government should consider signing a free trade agreement (FTA) with other automobile importing countries. The FTAs and manufacturing incentives have helped our south-eastern neighbours like Thailand to create a robust export manufacturing hub despite their small domestic market. India could follow a similar pathway to develop strong manufacturing capabilities driven by twin engines of sizeable domestic demand and exports. Incentives for local manufacturing and R&D of EVs, coupled with FTAs, could allow India to become a hub for EV exports and leapfrog to the most-suited local technology.

The road transport sector is essential for India’s economic fortunes since it forms almost half of India’s manufacturing output. Therefore, implanting this long-term roadmap could deliver economic prosperity, new jobs, emissions reductions, and energy security.

Vaibhav is a programme lead, and Himani is a senior programme lead at the Council on Energy, Environment and Water, an independent not-for-profit policy research institution