Forbes India 15th Anniversary Special

Electric vehicles are taking off steadily. How can the Budget help?

The government will need to do some more handholding before the EV sector finds a firm footing. With the upcoming Budget, the industry hopes for an equitable landscape with subsidies and incentives, across states and the Centre, and a focus on long-term policy measures

Manu Balachandran
Published: Jan 23, 2024 03:45:35 PM IST
Updated: Jan 23, 2024 03:56:14 PM IST

Electric vehicles are taking off steadily. How can the Budget help?People are seen charging their electric scooters at An OLA electric vehicle hyper charging station as seen in Kolkata , India. Image: Debarchan Chatterjee/NurPhoto via Getty Images

It’s finally safe to assume that the world’s fourth-largest automobile industry is amidst a much-awaited transition. While the pace may not mirror that of China, it is nevertheless a rapid one. From a meagre electric vehicle (EV) penetration of 0.09 percent in 2018 in the two-wheeler segment, and 14 percent in the three-wheeler category, EV penetration now stands at over 5 percent in two-wheeler sales and over 54 percent in the three-wheeler segment.

That means of the 17 million two-wheelers sold in India currently, nearly 1 million are electric vehicles. Of the 1 million three-wheelers sold in the country, over 580,000 are EVs.

In all, of the 24 million vehicles sold in the country, over 1.53 million are EVs, a phenomenal growth considering that just about 130,000 were sold five years ago. In the four-wheeler segment, from a market penetration of 0.05 percent in 2018, selling a little over 1,500 vehicles, the penetration has risen to 2.13 percent, totalling sales of over 80,000 four-wheelers a year.

All of that, of course, is largely the result of automakers taking the call to move towards electric power trains and offering a slew of products. From the likes of Tata Motors to Ola Electric and MG Motors, India’s automobile industry has seen incumbents and newbies taking a serious leap towards building up an electric portfolio.

The government’s role in pushing EVs remains significant, and expectations are rife that the government will need to do some more handholding before the sector finds a firm footing. Already, a scheme, labelled Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India), launched in 2015, has been operational for eight years, and in its second phase now, has total budgetary support of Rs10,000 crore.

Under the scheme, incentives are provided to buyers of EVs through an upfront reduction in the purchase price and mainly focuses on supporting the electrification of public and shared transportation. The scheme covers 7,090 buses, 5 lakh e-3 wheelers, 55,000 e-4 wheeler passenger cars, and 10 lakh e-2 wheelers in addition to creating charging infrastructure.

"The upcoming Union Budget presents a crucial opportunity to accelerate India's transition to electric mobility,” Naveen Munjal, managing director of Hero Electric, says. “We at Hero Electric are hopeful to see a continued focus on long-term policy measures that promote EV adoption such as reduced GST rates, extension of FAME-II subsidies/introduction of FAME-III, and increased infrastructure spending for charging infrastructure. This will spark consumer confidence and will bridge the affordability gap.”

Even as the government is expected to continue offering the next leg of the FAME programme, expectations are that the government will also bring some parity when it comes to taxes on battery technologies, particularly for the two-wheeler segment, currently the largest segment among automobiles in India. The government currently has 5 percent GST on EVs in the country, down from 12 percent earlier.

Also read: MG Motor has had a decent run in India so far. Can Sajjan Jindal take it to the next level?

Battery swapping means exchanging drained and discharged batteries for charged ones. The process helps reduce downtime and provides flexibility to charge them separately and is considered a viable option for two-wheelers and three-wheelers, especially as India looks at widespread adoption of EVs.

“Presently, a notable disparity exists in the GST rates between EVs sold with fixed batteries (taxed at 5 percent) and the lithium-ion batteries utilised for swapping purposes (taxed at 18 percent when sold separately),” Arun Sreyas, co-founder of battery swapping company RACE Energy, says. “With the interim Budget announcement in February, we’re also expecting GST parity for EV batteries used in swapping—crucial for competitive pricing—and they should hopefully align with the 5 percent bracket to fortify the EV landscape. We also hope that the registration process and subsidy mechanism for battery swapping vehicles will be defined under the guidelines of the FAME scheme.”

Swapping, unlike fixed batteries, is considered a Battery as a Service (BaaS) business model and helps reduce upfront costs, and works on a subscription fee, helping make vehicles more affordable.

"In the past year, favourable government policies and confidence in the sector has led to a surge in EV sales and production, exiting the nascent stage,” Avinash Sharma, co-Founder and CEO of electric vehicle charging provider ElectricPe, says. “With the upcoming Budget, we’re hoping for an equitable landscape with subsidies and incentives, across states and the Centre. This will not only increase production but also sales, usability and support. The extension of FAME 2 to FY25 is in itself a great sign for the continued development of the industry. Additionally, the GST rate on batteries needs to be lowered from 18 percent to 5 percent, in line with battery EVs, which will bring battery swapping and battery subscription in line with traditional EVs, a much-needed step.”

Over the past few years, India’s EV segment has seen some serious traction, with both homegrown and foreign automakers making a beeline with their models. Global automakers such as Tesla and VinFast are soon expected to start retailing in India alongside the likes of BYD, Tata Motors and MG Motors, among others. Tesla is expected to build a sub-$20,000 EV for the Indian market.

By 2030, about 40 to 45 percent of all two-wheelers and 15 to 20 percent of all four-wheelers (passenger vehicles) sold in India will be electric, according to a report by Bain & Co, while the government wants EV penetration to hit 40 percent for buses, 30 percent for private cars, 70 percent for commercial vehicles and 80 percent for two-wheelers.

“Budget 2024 should continue the existing concessional rate of import duties on lithium-ion cells, to reduce the capex cost of purchasing an EV,” says Nimish Trivedi, CEO and co-founder of electric cab service provider Evera. “Major automotive players are strategically investing in India's EV market, with plans for production, substantial investments, and collaborations to establish a robust electric mobility ecosystem. This shall incentivise foreign OEM players to produce in the Indian market, positively raising competition for local manufacturers.”

Also read: How Exponent is building a sustainable EV infra startup

That’s crucial considering how affordability remains a key constraint when it comes to mass adoption in a market that’s well-known for being price sensitive. Currently, electric vehicles from Kia, Mercedes, BMW and Hyundai, among others, position themselves at a higher price point, making them less accessible to a broader consumer base.

“A crucial focus lies on incentivising inbound technology transfer and manufacturing capabilities, positioning India as a global EV technology hub,” Nikhil Bhatia, co-founder and chief strategy officer at HOP Electric Mobility, says. “Anticipating the central role of lithium-ion batteries, we urge GST reform for increased cost-competitiveness. Charging infrastructure development, especially through public-private partnerships, is deemed pivotal for accelerated EV adoption. Moreover, the promotion of universal battery charging and swapping infrastructure aims to simplify the user experience and standardise EV charging.”

With India emerging as one of the world’s fastest-growing economies, alongside its commitment to the Paris climate accords, all eyes will now be on Nirmala Sitharaman’s Budget to see how the government will continue to walk the talk.