Context: As a part of promoting EV adoption and manufacturing in the country, the Government recently announced the revised FAME 2 subsidy. The FAME 2 scheme announced back in 2019 did lay out guidelines for EVs that could be eligible to qualify for the subsidy. The recent amendment in the scheme has extended the subsidy amount for the EVs that had met the previous eligibility criteria.

• This revision has certainly electrified the EV industry in the country as the scheme has been extended to 2024. While such a push is imperative for faster green vehicle adoption, a more significant reason that is obstructing the adoption is the limited choice available to a customer. Undoubtedly, companies are coming up with new eclectic two-wheelers and larger OEMs also playing a vital role in electric PVs. The ratio of choice given to, making the shift slower.
• In this edition of Big Picture we analyse how ready is India for electric vehicles.

Industry growth post FAME 2

• As per the Department of Heavy Industry, National Automotive Board, the number of EVs sold under vehicles under FAME 2 as of today are 78000+. 
• For a developing country like ours, this is still a small number when compared to the fuel vehicles sold on an annual basis or even monthly per se.
• Although the EV industry is at a nascent stage in the country, the shift to green mobility will be inevitable in years to come. Such a shift will be steady with Government support, policies like FAME 2, etc but the bottom line is still the manufacturing of an EV that could be the next best alternative to a petrol or diesel vehicle. 
• Reverse engineering could turn out to be the best solution going forward that would also help in addressing the major pain points like range anxiety, charging infrastructure, and affordability.
• The state governments like Delhi and Gujrat have been taking measures to help in the faster EV adoption. This will also imply the other states follow the same. With further incentives, the customers will find it easier to switch to electric vehicles.

Issue of charging infrastructure

• A key area that would need attention is the charging infrastructure. The government has also announced that commercial public EV charging stations for two-, three- and four-wheelers will be eligible for 25 percent capital subsidy on equipment/machinery (limited up to Rs 10 lakh per station) for the first 250 commercial public EV charging stations.
• While schemes such as FAME 2 will focus on the adoption of an EV but we will need to be facilitated with adequate support for the charging infrastructure deployment too. 
• The collaborative role of the Government and the private players in the industry will help in mitigating the issue.

Government policies

• Under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles and its updated (Fame 2) version, the government has allocated $1.3 billion in incentives.
• A proposal for a $4.6 billion subsidy for battery makers has also been proposed by the NITI Aayog.
• These policies are embedded with the vision to have 30% electric vehicles plying the roads by 2030.

Developing domestic  battery manufacturing capacity

• At present, India’s lithium-ion battery demand is fulfilled by imports from China, Vietnam, and Hong Kong.
• In the last two years, India’s lithium imports have tripled from $384 mn to $1.2 bn.
• With its policy intervention to support battery manufacturers by supplying lithium and cobalt, this industry is more likely to grow domestically to support India’s goal to switch to electric mobility.
• In 2019, NALCO, Hindustan Copper Limited (HCL) and Mineral Exploration Corporation Ltd (MECL) formally signed a joint venture agreement to form Khanij Bidesh India Limited (KABIL) to scout for strategic mineral assets like lithium and cobalt abroad for commercial use and for supplying to meet the domestic requirement for battery manufacturers.
• Developing domestic battery manufacturing capacity may fundamentally change India’s relationship with resource-rich Latin America as the government plans to buy overseas lithium reserves.
• In Latin America, most of the production comes from Argentina, Chile, and Bolivia which holds about 80% of the explored lithium of the world.
• Currently, India’s biggest trading partners in Latin America are Brazil, Mexico, and Venezuela, and majority of trade is concentrated on crude oil which includes 14%-20% of India’s total crude oil imports.
• This may soon shift to lithium and cobalt.

Key Concerns

• The Indian electric vehicle (EV) market currently has one of the lowest penetration rates in the world.
• Capital costs are high and the payoff is uncertain.
• Affordability of e-vehicles (EVs) and the range they can cover on a single battery charge.
• The Indian EV industry has been hit hard due to rupee’s dramatic depreciation in recent months.
• Local production of inputs for EVs is at just about 35% of total input production.
• The production will be severely affected in terms of production costs.
• The Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (Fame) framework has been extended repeatedly.
• An uncertain policy environment and the lack of supporting infrastructure are major roadblocks.
• India’s limited ability to manufacture cost effective batteries.
• India does not have any known reserves of lithium and cobalt, which makes it dependent on imports of lithium-ion batteries from Japan and China.
• High rate of GST on EVs when government is trying to promote EVs.
• Lack of attention on building charging infrastructure.

Suggestion

• For EVs to contribute effectively, we need commensurate efforts in developing an entire ecosystem.
• Need to shift the focus from subsidizing vehicles to subsidizing batteries because batteries make up 50% of EV costs.
• Increasing focus on incentivizing electric two-wheelers because two-wheelers account for 76% of the vehicles in the country and consume most of the fuel.
• A wide network of charging stations is imminent for attracting investment.
• Work places in tech parks, Public bus depots, and Multiplexes are the potential places where charging points could be installed. In Bangalore, some malls have charging points in parking lots.
• Corporates could invest in charging stations as Corporate Social Responsibility compliances.
• Addressing technical concerns like AC versus DC charging stations, handling of peak demand, grid stability etc.
• Private investment in battery manufacturing plants and developing low cost production technology is needed.
• India is highly dependent on thermal sources, which account for about 65% of current capacity. As EV adoption increases, so should the contribution of renewables.
• Need for a policy roadmap on electric vehicles so that investments can be planned.
• Acquiring lithium fields in Bolivia, Australia, and Chile could become as important as buying oil fields as India needs raw material to make batteries for electric vehicles.
• Providing waiver of road tax and registration fees, GST refunds and free parking spaces for EVs.

Road Ahead

• With the growing interest in this segment and the overall growth of the industry, EV will steal the limelight in years to come. EVs are indeed the future, and the amendment to the FAME 2 scheme is a phenomenal move. The Indian EV industry would see more traction when such subsidies are coupled with infrastructural development, thus contributing to incremental progress.