Road to EV adoption: A review of government targets and policies

State policies have outlined a good mix of demand incentives for promoting EV adoption in their regions. The road tax exemptions complement the FAME-II purchase subsidies and should be implemented at the earliest

May 27, 2021 11:56 AM

The need to switch from carbon-emitting vehicles to cleaner forms of transport has never been stronger. Adhering to global commitments, the Centre has ambitious targets for electric mobility in the country. However, it is state governments and local authorities that are tasked with the actual implementation of policies and programs to enable the transition. Several state governments have gone a step further to adopt and implement stand-alone state policies to promote electric mobility. The policy incentives and measures into three categories: consumer demand incentives, charging infrastructure incentives, and industry incentives.

Consumer barriers to EV adoption are relatively well-known; they include low EV awareness, higher purchase costs, a limited driving range, and the lack of EV charging infrastructure1. Demand incentives support the early market development of electric vehicles, given the nascent status of the EV market in the country.

Purchase Subsidies

Delhi and Maharashtra provide purchase subsidies across multiple small vehicle segments for eligible EV models and a defined number of EVs in each segment. Bihar offers purchase subsidies for the first 100,000 vehicles manufactured within the state, including strong hybrids. Kerala offers a purchase subsidy on electric three-wheelers, while Tamil Nadu promises an undefined subsidy amount for state transport undertakings (STUs) to purchase e-buses. While Maharashtra’s and Kerala’s subsidies are based on the vehicle’s purchase price, Delhi’s and Bihar’s subsidies are provided on the battery size of vehicles.

For buyers in Delhi who purchase EVs (without batteries) fitted out with a battery swapping model, 50% of the subsidy amount is provided to the registered owners and the remaining 50% to the energy operators to defray deposit costs of the battery swapping service. In Bihar, an additional incentive of Rs 7,000/ kWh is suggested for e-2Ws and e-3Ws using lithium-ion batteries instead of the conventional lead-acid batteries. These are innovative approaches for subsidy design, which structure and deliver the subsidy to have a greater impact.

Road Tax Exemptions

Despite the road tax exemption mandated in EV policies, most states have yet to implement the tax waiver. Karnataka and Madhya Pradesh currently levy a reduced road tax of 4% on EVs, while Kerala has slashed its road tax rates by half for EVs. Delhi, Maharashtra, Karnataka, Kerala, Bihar, Uttarakhand, Tamil Nadu, Andhra Pradesh, and Punjab offer 100% road tax exemption for newly-purchased EVs for varying durations of time.

Longer tax exemption periods are expected to benefit commercial vehicles, which pay road tax on an annual or semi-annual basis. Telangana and Madhya Pradesh offer road tax exemption for a fixed number of vehicles in each vehicle segment. Uttar Pradesh provides a road tax exemption for the first 100,000 buyers of locally manufactured EVs, 100% exemption for e-2Ws, and a 75% reduction for other EVs. All states except Punjab have offered an exemption on registration fees for EVs.

Access to financing

Access to financing for EVs remains to be solved. The uncertainty of residual value, risk of technological obsolescence, and lack of historical data make it difficult for financing institutions to assess the risk profile for EV lending, especially for commercial vehicles. This has led to fewer banks offering loans for EVs, often with higher down payments, higher interest rates, and shorter loan terms than ICE vehicles.

With a significant share of India’s vehicle sales dependent on debt financing, accessible and favorable EV finance will be integral to scaling adoption and reducing ownership costs. Policy-supported mechanisms such as down payment subsidies, interest subventions, low-interest loans, and extended repayment periods can provide more affordable financing for EV buyers.

Scrapping and retrofit incentives

Scrapping and retrofit incentives aim to remove high-polluting, older ICE vehicles from roads while accelerating the existing vehicle fleet’s transition to EVs. Delhi offers a scrapping incentive of Rs 5,000 and Rs 7,500 to purchase eligible electric two-wheelers and three-wheelers, respectively, which can be availed upon proof of scrapping and de-registering old polluting ICE vehicles.

The incentive is contingent on a matching contribution from the dealer or OEM. Punjab aims to notify a detailed scrapping policy for old vehicles in which EV adoption will be incentivized through transition credits. Telangana offers a retrofitting incentive at 15% of the retrofitting cost, capped at Rs 15,000 per vehicle, for 5,000 e-autos.

Scrapping incentives are effective in substituting ICE vehicles with EVs, without a net addition of vehicles on the road. As the price difference between ICE vehicles and EVs shrinks, purchase subsidies can be slowly tapered off, with a proportional increase in scrapping incentives.

State policies have outlined a good mix of demand incentives for promoting EV adoption in their regions. The road tax exemptions complement the FAME-II purchase subsidies and should be implemented at the earliest by state transport departments. Fiscal allocations for road tax exemptions in state budgets can help in the faster deployment of this incentive.

Authors: Chaitanya Kanuri, Rohan Rao and Pawan Mulukutla

Chaitanya Kanuri and Rohan Rao are managers at the Cities and Transport program, Pawan Mulukutla is the director for Electric Mobility at World Resources Institute India.

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

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