Budget 2020 India: The GST on EVs was reduced to 5 per cent and incentives in the form of income tax rebate on loans were offered to buyers.
By Jeetender Sharma
Union Budget 2020 India: As the Green Initiative and Make in India are being given high priority by the Indian government, the commitment to adopt electric vehicles (EV) will be on display during the Union Budget 2020. The EV industry awaits policy decisions that will impact the future of EVs in India. Last year’s union budget was a landmark for the EV industry. The GST on EVs was reduced to 5 per cent and incentives in the form of income tax rebate on loans were offered to buyers. These measures were designed to push the sales of EVs in addition to the FAME-II scheme. However, sales have remained lower than anticipated. Thus, this year the industry needs increased measures from the government to address the demand and supply concerns.
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With FAME, awareness about EVs did increase considerably. However, the outcomes of the main parameters of carbon dioxide reduction and fuel-saving were significantly lower than the target, and it didn’t do anything much to encourage manufacturers. As a result, Phase II of the FAME scheme was launched on March 8, 2019, with a much bigger subsidy fund. In association with Phase II of the FAME scheme, the government had also announced another scheme. Under this, the manufacturers who want to set up manufacturing plants for semiconductor fabrication, solar photovoltaic cells, and lithium-ion storage batteries would be liable to receive tax exemptions.
Boosting Local Battery Manufacturing
Last year, the finance minister Nirmala Sitharaman lowered GST on EVs from 12 per cent to 5 per cent, which had a positive impact on the industry. However, GST on raw materials is still a massive concern for the electric vehicle industry. The government needs to take more steps to promote the local manufacturing of batteries and other spare parts. Lithium-Ion batteries form 40 per cent of the total cost of an electric vehicle; the government should reduce the current GST rate from 18 per cent to 5 per cent. This reduction will encourage startups to set up battery manufacturing plants in the country through tax exemptions and also bring down the cost of EVs by a significant percentage. Also, it will be a big deal if the government does tie-ups for electronic parts companies, which can reduce the cost and MOQ for the raw materials.
Need investment in R&D
Financing has been a significant concern for the EV industry as nationalized banks do not offer any monetary help over EVs. It will be a massive boost if the subsidies are removed, and the government diverts them to the banking sector to resolve the financing issue. The electric vehicle sector expects that a significant amount of funds allocated to the EV under FAME should be spent on customer awareness. At present, Indian EV manufacturers don’t have enough money to spend on customer education. EVs are still an evolving sector, and the government should encourage private investors to invest in the research and development of EV projects, especially in Tier-I and Tier-II universities and campuses.
Through an innovation fund, startups, and entrepreneurs can start developing EV technologies in India using the local pool of talent and reduce the reliance on other countries for the import of advanced technologies. This step will also create more jobs in research as well as manufacturing. The number of EV charging stations should be increased and should additionally be made a mandate for companies under CSR activity. Lack of charging infrastructure is a significant pain point for the electric vehicle industry as well as buyers.
The government is already taking various measures to push the production and sale of EVs, such as subsidies to manufacturers and loan rebates to buyers, some more steps might help the change the face of EV industry this year. The government must support the EV sector in all possible ways to make EVs more affordable and viable. These measures can include lower power tariffs for charging EVs, exemption on road tax, exemption of permit costs, and exemption of parking fees for EV users, among others.
Jeetender Sharma is the Founder and Managing Director at Okinawa Autotech. Views expressed are the author’s own.