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Government incentivization aims to promote India’s EV industry

The recent announcement by India’s Goods and Services Council (GST) regarding the reduction of tax rates on electric vehicles (EVs), will take effect on 1 August 2019.  Reductions will see rates moving from 12 per cent to 5 per cent on EVs and from 18 per cent to 5 per cent on EV chargers, reinforcing the Indian government’s push for EVs to catch up to the production levels of internal combustion engines in the country, currently positioned as the world’s second largest manufacturer.

According to moneycontrol.com, as part of the government’s commitment to reducing carbon emissions, the GST Council also approved tax free hiring of electric buses by local authorities for those buses with a carrying capacity of over 12 passengers.

The tax cut enhances policy makers’ objective to support electric mobility and reduce the dependence on fossil fuels for transportation.  India has committed to cut its greenhouse gas emissions below its 2005 levels by 2030, with the goal of a 33 – 35 per cent reduction and the EV rate reduction provides an environmentally friendly option, promoting an alternative to the fuel-based automobiles which currently contribute to the country’s problem with pollution.

According to Livemint, India has committed to adding 175 GW of capacity through renewable energy by 2020 together with achieving 40 per cent of electricity generation from non-fossil sources by the same year.  In order to facilitate this objective, the government needs to find an alternative to the current oil imports used for over 80 per cent of its transport fuel.  This increases the significance of promoting EVs as an alternative form of mobility which will decrease the country’s reliance on fossil fuels for transportation.

Electric vehicles play a key role in making this goal possible and the government has set its sights on accelerating EV production through these incentives.  Rate reductions also aim to incentivise consumer adoption of EV mobility,  a move pre-empted in Finance Minister, Nirmala Sitharaman’s maiden budget speech, with the announcement of tax relief for purchase of electric vehicles, proposing an income tax deduction of Rs1.5 lakhs on interest paid on loans taken for EVs.

According to Reuters,  India is the world’s third-biggest emitter of greenhouse gases and home to 14 of the world’s most polluted cities. Part of remedying this situation is the country’s objective for electric vehicles to account for 30% of all passenger vehicle sales in the country by 2030.  Although electric vehicles are less than 1 per cent of the automobile industry, the Indian government are also taking steps to remove current impediments to adoption with plans afoot to improve the charging infrastructure throughout the country.

In fact, Sitharaman announced in her budget speech that government aims to make India a hub of electric vehicle manufacturing, with large manufacturing plants for lithium storage batteries and solar electric charging infrastructure – key factors in encouraging growth of the country’s EV industry.

As part of the commitment to motivation EV adoption, early July saw the government removing import taxes on some auto components as part of the incentivization to help boost electric vehicle sales and provide an alternative solution to the dependence on fossil fuels.

Experts anticipate that together with these new provisions, together with the reduced rate of GST will help facilitate an increased demand for electric vehicles in India.

According to Moneycontrol.com, further EV support is reinforced by the government’s announcement on 1 April 2019, of the second phase of the FAME (Faster Adoption and Manufacturing of Electric vehicles) with an approved budget of Rs 10 000 crore.  The FAME 2 scheme is set to be implemented for a 3-year period, offering exemption from road tax and registration charges for hybrids and EVs.  The scheme will also be responsible for the development of the countrywide infrastructure of charging stations, essential to facilitate a thriving EV ecosystem.

 

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Investique Consulting is a dedicated global advisory and business development firm assisting corporations, partnerships and institutions with frontier market analysis in the Middle East, Africa, BRIC (Brazil, Russia, India and China) and N-11 countries. We guide clients through market expansion, potential investment and strategic partnerships that offer improved return.

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