Budget 2022 must take a long-term approach to the electric vehicle sector

Budget 2022 must take a long-term approach to the electric vehicle sector

EVs have emerged as the industry’s definitive future, driven by the focus to embrace a carbon-neutral tomorrow. The increased attention towards EVs can be gauged from the fact that in 2021 the sales of electric two-wheelers (E2Ws) jumped over two-fold jumped over two-fold to 233,971 units against 100,736 units in 2020. This inevitable transition to EVs needs high capital investments in technology research and product development by startups and OEMs to build EV platforms, and introduce them to the market at a faster pace. The government too has envisioned a clear road map for a major transformation to EVs by 2030. The government’s keenness to eliminate the pre-existing roadblocks by making swift policy changes for sustainable mobility is encouraging growth in the segment.

The automobile industry, particularly the Electric Vehicle (EV) segment, has emerged as the elephant in the room, and India is on the verge of ushering in an electric mobility revolution. According to a recent analysis by RBSA advisors, the Indian electric vehicle market is predicted to rise at a CAGR of 90% this decade, reaching $150 billion by 2030. This is a huge opportunity for India to not just achieve its sustainability goals, but also to establish itself as a global EV manufacturing hub.

In September, the government issued a notification regarding a PLI scheme for automobile and auto components worth Rs 25,938 crore ($3.49 billion). This scheme is expected to bring investments of over Rs 42,500 ($5.74 billion) by 2026. The government has also offered $3.5 billion in incentives over a five-year period until 2026, under a revamped scheme to encourage production and export of clean technology vehicles. While all this is good news, the challenge is that startups seem to be getting a short thrift. The government recently declared January 16 as National Startup Day, referring to startups as the backbone of a new India. By that spirit, it is only fair that Budget 2022 takes cognisance of the significant investments being made by startup OEMs in the EV sector, helping the technology development creating new value propositions also leading to significant employment development. Hence, startups should be considered under the PLI scheme, reversing the earlier decision about the scheme being applicable only to the established players. This would ensure an ecosystem that is inclusive, and help create a level playing field for the industry.

Budget 2022 also needs to take a macro view of the industry, and the economic landscape. Oil prices continue to vary indiscriminately and India’s reliance on fossil fuels must decrease for it to save on precious foreign exchange, and simultaneously show the world that it is committed to reducing emissions. That is important given that in Delhi alone well over 50 percent of India’s pollution originates from automobiles. Given the potential for EVs, the government needs to catalyse the development and mainstreaming of the sector, and a great start would be to see that there is a uniform GST consideration of 5 percent on the entire EV system, instead of current 18 percent on the lithium-ion batteries for automobiles verses 5 percent GST on EVs.

A reduction in customs duty on lithium-ion cells would help local component manufacturers in scaling up production, further reducing the overall upfront costs of battery production, and positively impacting the market price of EVs. This will help the industry achieve its carbon-neutral energy goals quicker. Under the FAME II subsidy, the government has kept a cap of Rs 1.5 lakh on the ex-factory price for EVs to offer the subsidy to consumers. Now given that this is a five-year-old price point, we expect the government to revise it in line with the inflationary and commodity price hikes for EVs.

As our policymakers are working to drive positive change, a holistic, long term, and comprehensive strategy for the development of the EV and energy storage sectors is essential considering startups as important change drivers if India is truly to become ‘Aatmanirbhar’, and be globally acknowledged as a powerhouse for EV manufacturing across its entire supply chain.

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