Indian government think-tank targets full vehicle electrification by 2032

08 May 2017 Anil Sharma, M.B.A.

Lower taxes, subsidised loans, and cap on sales of conventional cars are among the measures suggested by the Niti Aayog think-tank to achieve an ambitious target of full vehicle electrification in India by 2032.

IHS Markit Perspective:

  • Significance: The Indian government's apex planning body has recommended sweeping policy changes to encourage wider adoption of electric vehicles (EVs) with an aim of electrifying all vehicles in the country by 2032.
  • Implications: Although more policy details will emerge, the proposal puts indigenous development of battery technology on the back foot, at least temporarily.
  • Outlook: Too few details are available to assess the policy's possibilities of success. But the government might benefit from electrifying public transport fleets first to clearly show the advantages of EVs to private buyers.

The Indian government's Niti Aayog think tank has recommended a sweeping policy to encourage wider adoption of electric vehicles (EVs), reports Reuters. The apex planning body's Transformative Mobility Solutions for India draft report signals a radical shift in government policy for the nascent sector with an aim of electrifying all vehicles in the country by 2032. The most prominent recommendations include lower taxes and subsidised loans to popularise the new technology in the fast-growing market, where buyers have shown little interest so far in the government's current FAME (Faster Adoption and Manufacturing of hybrid & Electric vehicles) scheme. "Limit registration of conventional vehicles through public lotteries and complement that with preferential registration for EVs, similar to that in China," advocates the report, which envisages a three-phase plan spanning 15 years.

The policy document, which will be made public this week, also suggests the government open a battery plant by 2018 to bring down the cost of the most expensive and critical electric car component. Costs can also be lowered through bulk procurement of EVs as well as through standardised, swappable batteries, added the report. In taxation, the policy document advocates using tax revenues from sales of conventional cars for setting up charging infrastructure for EVs.
Headed by Prime Minister Narendra Modi, the planning body is often tasked with creating blueprints that are eventually implemented with minor changes. The draft paper's radical recommendations are therefore interesting. The paper talks about capping sales of conventional cars to halve India's oil import costs by 2030 and to reduce its emissions as part of its commitment to the Paris climate treaty. "India's potential to create a new mobility paradigm that is shared, electric, and connected could have a significant impact domestically and globally," said a draft version of the report.

The draft makes no mention of hybrid technology, covering recommendations and incentives only for fully electric vehicles in a marked departure from the current FAME scheme, which offers incentives for buying hybrid vehicles.

Outlook and implications

The draft will likely undergo changes before any recommendations are adopted. The government will also probably take feedback from automakers and other industry stakeholders. But the proposal points to a radically different approach and could offer headwinds to automakers and suppliers even if its recommendations are watered down.

Capital investments in developing and localising hybrid technology would be at risk if the government steps in to exclusively promote EVs. Automakers such as Toyota and Suzuki have marked preferences for hybrid technology and the government's plan could make it harder for them to invest in localisation. Although more details will emerge as the policy takes shape, it surely puts indigenous development of battery technology on the back foot, at least temporarily.

India would benefit from reducing its dependence on imported oil. As vehicle acquisition and operating costs are pretty high in India, the country is an ideal platform to promote EVs, although it has its own challenges as well. Since cars are aspirational purchases in India, buyers have limited scope to experiment and to pay a premium for technology. Virtually non-existent charging infrastructure also sparks range anxiety. Creating charging infrastructure or battery-swapping stations in urban areas will only partly solve the problem, discounting the inter-city movement phenomenon. Current poor demand for hybrid and EVs, despite government incentives, demonstrates the hurdles.

Given the lack of detail, the policy's potential for success cannot be confidently assessed. The government might be better advised to first electrify public transport fleets to demonstrate the advantages of EVs to private buyers.

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