INCENTIVES FROM THE INDIAN GOVT TO BOOST EV AND BATTERY-RELATED NORMS

Electric vehicles (EVs) are not only good for the environment but are also much more cost-efficient than traditional petrol and diesel powered vehicles. They are cheaper to run, and the cost of electricity required to charge an EV is around 40% less than the cost to use petrol for a similar-sized vehicle driving the same distance. The cost will be even lower if the EVs are charged from a solar PV system or at free charging stations.

EVs are also cheaper to maintain. A battery electric vehicle (BEV) contains fewer moving parts than a conventional petrol/diesel powered vehicle. This will make servicing less frequent, relatively easy, and way cheaper than a petrol/diesel vehicle.

The continual rise in petrol and diesel prices year on year is driving customers’ around the world including India to opt for EVs. But EVs are still not as affordable in India when compared to the situation in many developed nations. To make it more affordable within the reach of many customers’, the Indian Government has been taking several steps in recent years to accelerate EV adoption. Towards this end, the Indian Government has been rolling out several incentives and subsidies to both EV buyers and manufacturers.

INCENTIVES OFFERED BY THE INDIAN GOVERNMENT

In the Union Budget, 2022, the Indian Government tripled its budgetary allocation for EV subsidies. The subsidy granted under the Faster Adoption & Manufacturing of Hybrid & Electric Vehicles (FAME) for FY2023 is expected to be Rs 2908 crores, with the allocation of Rs 800 crore tripled for the current fiscal year (nine times higher than last year).

Furthermore, under the Rs 10,000 crore FAME-II (Faster Adoption & Manufacturing Of Hybrid & Electric Vehicles) scheme, the Indian Government is offering 50% higher incentives on two-wheeler EVs. For two-wheeler EVs, the incentive has been increased to Rs 15,000 per kWh from Rs 10,000 along with the cap on incentive which has been enhanced to 40% of the vehicle cost from the initial 20%. Similarly, for four-wheeler EVs, there is an incentive of Rs 10,000 per kWh of battery capacity, up to Rs 1.5 lakh.

The above incentive benefits apply to two-wheelers and electric cars that meet the criteria defined under the FAME-II scheme, over and above the State Government concessions. The cars currently on sale in India that fulfill the eligibility criteria under this scheme are the Tata Nexon EV, Mahindra e-Verito, & Tata Tigor EV. To allay the fears of car owners who do not own any of the three mentioned, the Indian Government has introduced a drafted amendment to the Central Motor Vehicle Rules. Once approved, the amendment will exempt all EVs from registration and renewal fees across India.

Also, under the FAME-II scheme, the total outlay is divided into Rs 8,956 crore for demand incentive; Rs 1,000 crore for charging infrastructure; and the rest for administration infrastructure and committed expenditure during FAME-I. Approximately 200,000 EVs have been supported under the FAME-II scheme; and for the last three fiscal years, approximately Rs 900 crore has been allocated for two and three-wheeler EVs.

INCENTIVES FOR BATTERY ELECTRIC TECHNOLOGY

On 24th March 2022, the Indian Government announced a PLI (Production Linked Incentive) scheme of Rs 26,938 crore for automobile and auto components; and PLI for ACC (Advanced Chemistry Cell) of Rs 18,100 crore, along with the FAME scheme (Rs 10,000 crore) to promote advanced technologies, chief of which battery-electrictric technology; and enable Indian to leapfrog to environmentally cleaner, sustainable, advanced, and more efficient EV based system. The incentive amount will be provided for five years.

A PLI scheme provides incentives to companies to boost domestic manufacturing; make products more competitively priced, reduce India’s dependence on imports, and generate employment. There is an eligibility criteria in the form of global revenue from an OEM of Rs 10,000 crore and for an auto-component manufacturer of Rs 500 crore. In addition, there is also a criteria that states the global investments of companies in fixed assets of Rs 3,000 crores (for OEMs), while the auto-component makers need a minimum of Rs 150 crore.

The total amount of Rs 26,958 crore is half of what was embarked for the auto sector in 2021 and does not include internal combustion automobiles or CNG and LPG. The overall incentives in the PLI are purely percentage-based with a maximum of 18% incentives to be provided by the Indian Government, based on the incremental turnover of a company.

The PLI scheme will be extremely beneficial considering that the EV supply and value chain apparatus are yet to be built in India. With the scheme, the development process will only pick up and accelerate.

Another notable aspect of the scheme is its focus on not just EVs but also Hydrogen Fuel Cell vehicles and their components. Under the PLI scheme, there are two separate schemes – Champion OEM Incentive Scheme, & Champion Component Incentive Scheme. The items under the component scheme include flex fuel kits; hydrogen fuel components; high-voltage connectors & connectors and cables; AC & DC charging inlet and outlet ports; electric motor components; electric compressor; and so on. In all, around 22 products are specified.

The PLI scheme along with other schemes like FAME, ACC, etc; and multiple state subsidies provide a direct financial incentive for automotive and auto components companies, and also an indirect one in the form of investments by popular brands. The Indian Government is expecting the PLI scheme to attract investments worth Rs 42,500 crore.

The PLI scheme is also expected to create more employment opportunities estimated at 750,000 jobs in the EV, fuel cell manufacturer, and component space. In addition, it will also drive more engineering and administrative talent toward EV start-ups and manufacturers looking to gravitate to EVs. Furthermore, the scheme is also expected to make it more lucrative for renowned companies like Tesla Motors which has sought relaxation in the tax structure in the past, to enter the Indian market.

A notable aspect of the PLI scheme is the exclusion of conventional carmakers. This is primarily to encourage them to invest less in power trains even though it continues to occupy most of the market share for the duration of the PLI scheme. Overall, the PLI scheme is predicted to go a long way in strengthening India’s profile as a manufacturer of zero-emission vehicles.

BATTERY SWAP SCHEME

As of 3rd Feb 2022, the Indian Government was also close to finalizing incentives under a new battery swap scheme (estimated to be 100 billion rupees - $1.3 billion) for EVs within the next two months. The move is to accelerate the push towards broader clean mobility push to meet decarburization goals.

The new policy is expected to focus in the initial stages on battery swap services for electric scooters, motorcycles, and three-wheeled auto-rickshaws. This will provide a boost for sectors like ride-sharing and last-mile delivery. The policy will also allow the EV drivers to replace depleted battery blocks with freshly charged ones at swap stations. This is projected to be faster than charging the vehicle and reducing range anxiety for drivers.

Furthermore, as the most expensive part of an EV, battery swapping will allow companies to offer it as a service through lease or subscription models. This will bring down the cost of owning and operating the vehicle.

The Indian Government is also likely to offer EV owners an incentive of up to 20% of the total subscription or lease cost of the battery. This will be in addition to what the owners already get for buying clean vehicles. Also, the Indian Government will define battery design and charging standards for companies that want to set up swap stations. This will ensure that the batteries can be used across EV models of different automakers.

Meanwhile, things are happening in the battery swap segment. Oil giant Reliance Industries has formed a JV with Britain’s BP Pic to offer battery swapping. Similarly, Hero MotoCorp & Taiwan’s Gogoro has also partnered to set up swap stations; and a start-up called Sun Mobility is also offering the same service.

TAX BENEFITS FOR EVs

Under the Indian tax laws, cars for personal use are considered luxury products. Therefore, salaried professionals do not get any tax benefits on auto loans. The Indian Government to encourage the use of EVs has created a new section that exempts EV owners from paying taxes.

Under the new section, individuals are the only ones who can take advantage of the deduction. Other tax-payers like the HUF, AOP, Partnership firm, Company, or any other type of tax-payer, are not eligible for this deduction.

Further, under the new section called 80EEB, the exemption is

? Only available to each person. This means that only a person who has never owned an EV before is eligible for Section 80EEB loan tax relief.

? limiteded to persons who are financing an EV. The EV should be financed by a loan from a financial institution or a non-banking financial company (NBFC).

In addition to the above, payoffs of any EV loans accepted between April 1, 2019, and March 31, 2023, are eligible for tax savings under the new section.

Furthermore, from FY 2020-2021 onwards, tax incentives under Section 80EEB are available. Those who choose to acquire an EV on loan will be eligible for a tax deduction of Rs 1.5 lakh on interest paid on the loan amount under Section 80EEB. These tax savings will make buying an EV as their next vehicle an appealing prospect for salaried professionals.

The Indian Government has also undertaken several initiatives, as a part of its commitment under the Paris Climate Accords, to promote the use of EVs. It has also pushed the State Governments to accelerate the purchase of EVs. Another notable move was in August 2021 when the Ministry of Road Transport & Highways (MoRTH) declared that EVs will be exempted from fees to issue or renew registration certificates.

The Central and State Governments’ subsidies; a favorable policy that recommends deeper discounts for Indian-made electric two-wheelers; and a continual boost for localized ACC battery storage products will be major drivers for the Indian EV industry in the coming years. The EV market in India will further gather speed in the coming days with possible 100% FDI, new manufacturing hubs being set up, and an elevated push to ramp up charging infrastructure.

A report by IESA (India Energy Storage Alliance) has predicted that the Indian EV market will grow at a CAGR of 36% till 2026, while the EV battery market is predicted to grow at a CAGR of 30% during the same period.

FINAL POINT

In 2021, India reported sales of over 300,000 EV units. With sales expected to further pick up in the coming years, the future looks immensely bright for the Indian EV market.

The EV market in India, according to an independent study by CEEW Centre for Energy Finance (CEEW-CEF), will be in 2030 a US$206 billion opportunity waiting to happen. This would be possible only if India can maintain and sustain its current steady progress to meet its 2030 target. To achieve the same, India would need a cumulative investment of over US$180 billion in vehicle production and charging infrastructure.