The Indian Electric Vehicle (EV) market is in its infancy and is expected to grow at a compounded annual growth rate (CAGR) of 90 percent in this decade, touching $150 billion by 2030. The market penetration in EV sales is about 1.3 percent of total vehicle sales in India during 2020-21 and is projected to grow faster in the subsequent years.
India’s shift to electric mobility could help the country save nearly one gigatonne of carbon dioxide emissions by 2030, bringing it closer to its COP26 commitment. Therefore, the Union Budget 2022-23 is expected to focus on the long-term policy to promote investments and financing in EV space.
India has a unique opportunity to electrify its vehicles and emerge as the global manufacturer for EVs, thereby generating significant employment and positively impacting the GDP. Budgetary allocations are expected to expand domestic manufacturing capabilities such as production linked incentive (PLI) scheme to boost the growth of the EV industry.
Several initiatives from the Government were witnessed last year, which are likely to yield positive results for the sector in the years to come. The production-linked incentives extended for electric vehicles and advanced technology components, the vehicle scrappage policy, and the recent announcement of the PLI scheme for semiconductors are some of the significant positive steps that can rejuvenate demand and resolve supply chain disruptions for the sector. However, continued government expenditure and a stable tax policy in the upcoming Union Budget can pave the way for enhancing the EV industry.
Specific allocations are expected to reform the distribution sector, which remains absorbed in challenges of delayed payments and the power dynamics of value chains. According to industry experts, the payment structure of discoms has been the weakest link that remains to be addressed. The Government is expected to provide a long-term solution ensuring viability so that the large-scale manufacturing plants can attract investments.
Reducing custom duties on EV equipment such as lithium-ion cells and battery packs will ignite the industry with an increased number of takers. The budget encourages integrated battery storage systems (BESS) through provisions such as customs duty exemption for importing lithium-ion batteries, introducing storage purchase obligations for discoms and financial incentives for commercial and industrial customers using BESS power.
It is necessary for India to switch to cleaner fuel and to prepare a base for exponential growth in Electric vehicles to reduce its carbon footprints. EV charging infrastructure segments are significant for EV adoption in the country.
A consulting firm RBSA Advisors report estimates that India needs about 400,000 charging stations to meet the requirement for 2 million EVs that could pester its roads by 2026. The EV charging infrastructure is expected to boost specific sops from the Government to cater to this enormous demand.
The industry body PHDCCI has suggested that the finance ministry brings about a tax holiday for the investments in electric vehicles. As many companies have been looking to set up a base in India for the electric vehicle sector, certain benefits in the form of deduction or exemptions would go a long way to achieve the vision of a pollution-free country by 2030. Notably, the Finance Act, 2021 introduced a new provision under Section 80EEB whereby an individual is allowed a deduction for interest payment of up to Rs 1.50 lakh on loan taken to purchase an electric vehicle from AY 2020-21. This measure has been greatly welcomed in EV space.
However, the lack of financing options for commercial drivers remains the biggest challenge in this journey. Attractive economics and government push have increased the demand for EVs substantially, while the critical growth vertical, the commercial EV segment, goes unattended. EV financing is expected to become the most significant enabler for EV adoption in the next few years. The budget, therefore, has the potential to facilitate the ease of financing, particularly for the unbanked segment.
The Government of India has set up phase-II of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme in 2015 to promote EV and hybrid vehicles adoption in India, with Rs 10,000 crores budgetary support. The ambitious scheme for electric mobility has been extended by two years until March 31, 2024. It is expected that the Union Budget will introduce effective measures to utilise FAME II funds.
These precise policy interventions will accelerate economic recovery, create jobs, attract investment, increase exports, and enable India’s energy security. The Union Budget 2022 sets expectations to provide a fillip to the EV industry, catalysing India’s steps towards achieving the ambitious climate change commitments unravelled at the COP26 summit in Glasgow.
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