Are electric vehicles sparking into life at last?

There is little doubt that the future of mobility lies with electric vehicles (EVs). The environmental catastrophe that befalls most Indian cities every winter makes it vital for the government to push for faster adoption of EVs. Some reports indicate that the government wants 30% of all vehicles to be EVs by 2030. These are some of the measures that the government has taken to achieve that target.

In order to promote EVs, the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles scheme (FAME) was launched under the National Electric Mobility Mission Plan 2020 to support manufacturing of EVs and to ensure the sustainable growth of the sector. Phase 1 of FAME started in 2015 and ended in March 2019. The second phase is underway with about US$1.4 billion allocated over three years from April 2019.

The 2019 budget introduced the following measures to reduce manufacturing costs of EVs and make them more attractive to consumers: (1) the rate of Goods and Services Tax (GST) was reduced from 12% to 5% from 1 August 2019 on the purchase of EVs, chargers and charging stations; (2) an additional income tax deduction of ₹150,000 (US$2,090) has been granted on interest paid on loans taken out to purchase EVs, provided the loans are drawn down on or before 31 March 2023; and (3) import of certain EV components is now exempted from custom duty payments.

A proposal has also been put forward to invite global companies to set up manufacturing plants to develop lithium-ion batteries and set up charging infrastructure through a transparent bidding process, along with provision of investment-linked income tax exemptions.

The measures announced by the government aim to reduce the cost of EVs, and also at making India a hub for supporting EV technologies. Reduction of GST on the purchase price of EVs and their components will reduce the price gap between fossil-fuelled vehicles and EVs. Exemption from customs duty on certain EV parts, especially lithium-ion batteries, will lower the costs of manufacturing and will translate into lower purchase prices. Income tax reductions on loans taken out to purchase EVs may incentivize migration from traditional to electric vehicles.

Abhishek Tripathi is the managing partner of Sarthak Advocates & Solicitors. Anura Gupta is a principal associate at the firm.

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