By Keerthana Chavaly, Lady Shri Ram College for Women, New Delhi.
Phase 2 of FAME India, which is a part of the National Electric Mobility Mission Plan (NEMMP) 2020, aims to reinvigorate the push for clean energy and address the drawbacks of Phase 1 by increasing the use of environmentally friendly electric vehicles through investing Rs. 10,000 crores for a period of three years (2019-2022). In June 2015, the government kick started a scheme called Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles in India (FAME India). The scheme aimed to increase the use of electric vehicles in the country by implementing a policy that would raise the demand for environmentally friendly vehicles. The policy focused on the auto sector, with Phase 1 of the scheme intending to develop infrastructure and promote technologies that would be required for increased and sustained production of electric vehicles (EVs). However, the results of Phase 1 have not been entirely positive – reduction of carbon dioxide (CO2) emissions and fuel targets have not been met.
The push for EVs will help India meet its goals for the Paris Agreement that was adopted in 2016. As a signatory of the Agreement, India has pledged to reduce 33-35% of its greenhouse gas emissions intensity of GDP (emissions per unit economic activity) by 2030. A shift from internal combustion vehicles to electric vehicles will greatly reduce India’s carbon footprint and will be integral in fulfilling its pledge.
The principle thrust of Phase 2 lies in creating demand incentives for electric vehicles and promoting e-mobility. Incentives include tax concessions as well as decreasing the cost price of EVs. Phase 2 also involves an emphasis on subsidizing the production of lithium ion batteries, a key component of EVs. These aspects were welcomed and hailed as the push needed for the manufacture and adoption of hybrids and plug-in vehicles as they address the biggest hurdles that India faces in its move to promote e-mobility. But, this policy can be potentially harmful since it increases India’s dependence on Chinese imports of lithium ion batteries since India lacks the resources (such as cobalt and lithium) needed to manufacture them indigenously.
The results of Phase 2 of FAME India so far, have been less than acceptable. The underlying policy of the Phase has been heavily criticized vis a vis the incentives in place for electric two-wheeler vehicles. The policy only allows for subsidies of electric two-wheeler vehicles that are high-speed and therefore more expensive in comparison to low-speed two-wheeler vehicles. In fact, SMEV (Society of Manufacturers of Electric Vehicles) reported that there has been a reduction of over 93% in the sales of electric two-wheeler vehicles in April-Dec. Phase 2 also involves an emphasis on subsiding the production of lithium ion battery 2019 as compared to Phase 1 of FAME. This comes as a blow to the industry as SMEV predicted sales to increase twofold. The organisation also reported that the industry is managing to survive by selling low to mid-speed vehicles that are ineligible for subsidies. As a result, the industry is suffering heavy losses. Another reason for the decrease in sales of electric two-wheeler vehicles is the re-certification process vehicles need to undergo in order to receive government subsidies. This re-certification process is lengthy, leading to fewer vehicles being eligible – up to 95% of the vehicles eligible in Phase 1 are ineligible in the current phase for certification due to tighter norms and thus fewer vehicles are available for sales.
In addition to these problems, EV manufacturing is being hurt by a particular Phase 2 requirement that mandates at least 50% of the components of vehicles to be sourced locally in order to qualify for government subsidies. It is difficult for manufacturers to source such a high percentage of parts locally because parts are unavailable owing to the low volume of EVs in India. Producing and supplying parts is a time-consuming process, thereby affecting the feasibility of a fast adoption and manufacturing of electronic and hybrid vehicles. Phase 2 should instead focus on developing alternatives to lithium ion batteries – alternatives that are cheap and do not require foreign resources. While there is increased emphasis on public transport in Phase 2, private vehicles have been largely ignored. Government subsidies are only granted for electric three or four-wheeler vehicles that are to be used for commercial purposes. This means that the entire private auto sector has been shut out of Phase 2, greatly limiting its scope.
SMEV seeks greater subsidies for low-speed electric two-wheeler vehicles and advocates for a change in FAME policy that will enable consumers to invest in low-speed, low-cost two-wheeler vehicles. Such an amendment to the policy will certainly be beneficial. Since the Indian two-wheeler market is dominated by low-speed vehicles, government subsidies for this bracket will entail both greater affordability and availability of electric two-wheeler vehicles. This demand echoes the policy adopted by Japan that has led to it being among the largest markets for EVs much like the US, China and Norway. Phase 2 of FAME-India emulates the Japanese policy of focusing on lithium ion batteries and establishing infrastructure needed to adopt EVs such as setting up 2,636 charging stations across the country. However, it neglects the part of Japan’s policy that involved a highly successful incentives-based scheme – that allowed for subsidies of up to 50% for buyers of EVs.
Another way India can increase e-mobility is by emulating China’s New Energy Vehicle (NEV) policy that seeks to increase sales of EVs and reduce the use of vehicles with internal combustion engines (traditional engines that are environmentally harmful) drastically. The policy motivates businesses to invest and promote EVs through creating sales quotas for environmentally friendly vehicles that have to be met by businesses. Sales lead to the earning of credits that can be bought and sold among businesses that have deficits or excesses of credits. China’s robust policy creates confidence in future EV demand from Chinese markets. As a result, businesses manufacture and sell more EVs that in turn lead to more robust policies. This creates an ambition loop, wherein policy and business goals create desirable outcomes. India can also stand to learn from Sweden’s policy on e-mobility. Sweden has increased taxes on cars that create pollution, thereby dissuading consumers from buying vehicles with internal combustion engines as they contribute significantly to noise and air pollution.
The shift to EVs is important as it leads to a substantial decrease in greenhouse gas emissions – EVs reduce carbon dioxide emissions as well as produce fewer emissions that contribute to climate change and smog than conventional vehicles. Currently, as India depends largely on coal for electricity, the environmental benefits of EVs are diminished. However, as the country is taking decisive steps towards shifting to solar power, EVs will become more environmentally friendly. EV related policy will benefit if it pays attention to the economic feasibility of shifting to plug-in vehicles. While they have great potential to be cheaper in the long-run – petrol prices will keep increasing as fossil fuels grow scarce and operating costs of EVs will keep decreasing as the production of EVs will rise in India and worldwide – presently, pricing of the vehicles needs to be adjusted. A price reduction both in terms of market price as well as cost of charging and maintenance will especially benefit the electric two-wheeler industry. Furthermore, India’s power grids need to be sufficiently structured to deal with the increased energy needs that will accompany a shift to e-mobility. The benefits of electric vehicles are tantamount in ensuring a reduction of pollution and reaching a stage of development that is both sustainable and environmentally friendly. The advantages of e-mobility also extends to better standards of living – reduced risk of air pollution related medical problems and decreased noise pollution will be the most noticeable advantages of a large-scale adoption of e-mobility.