In sharp contrast, currently there is little or no manufacturing capability for EV parts in India.
By Surajit Mitra
There are reports of the NITI Aayog possibly mandating all new three-wheelers and all new two-wheelers up to 150cc engine capacity to be battery-driven from 2023 and 2025 onwards, respectively. If true, this step will shake up the industry, currently producing over 24 million two-wheelers and 1.3 million three-wheelers annually. So, what’s the raison d’être for such an ambitious and potentially high-risk adventure—is it protecting the environment, reducing imports of fossil fuels, or high-profile optics?
The auto sector is an intricate industry and requires in-depth understanding of both domestic realities and global imperatives. It is one of the major drivers of our economy, providing bulk of commercial transportation and personal mobility. Under the Automotive Mission Plan 2006-16, India emerged as a major global player. Total production in 2005-06 was 97.43 lakh (all segments), which reached a staggering 2.533 crore at the end of the mission in 2016-17. Investment by OEMs alone went up from `32,748 crore in 2005-06 to `1,76,121 crore in 2016-17, and the value of exports shot up from `21,789 crore in 2005-06 to `1,44,120 crore in the same period. Currently, the sector contributes 7% to GDP, and supports 3.7 crore jobs directly and indirectly. Needless to say, this sector deserves careful handling by the government.
Coming back to the NITI Aayog proposal, we must study how battery electric vehicles (BEVs) became popular globally. Economies with a strong auto sector like Japan, South Korea and the US, who started their EV journey much earlier, avoided coercive policies and instead continued to apply a mix of policies aimed at creating an enabling environment, totally market-driven and technology-agnostic. The reasons are obvious—barriers to BEV adoption are the lack of consumer acceptance owing to issues such as high prices, range anxiety, charging time, issues with battery performance, etc. The 2019 Deloitte Global Automotive Consumer Study indicates that even today consumer preference for BEVs is around one-fourth of hybrid electric vehicles (HEVs). In case of India, consumer preference for petrol/diesel vehicles, HEVs and BEVs is 61%, 21% and 6%, respectively. So, the natural challenge is how to sell a product that does not meet consumer expectations?
Also, the advanced economies adopted a more balanced approach for avoiding potentially adverse impacts on their economies and loss of jobs. The strategy of most of these countries has been one of optimisation through maximum reduction in fossil fuel usage by mixing alternative energy sources. Moreover, these countries also believe that BEV is a transition technology, and there will be ultimate shift to hydrogen as the fuel of the future.
Even China has been careful to match its policies with ground realities. As the maturity of its BEV ecosystem improved over time, it suitably modified its strategies. For instance, during the initial introduction phase of BEVs, China used market-driven, technology-agnostic approach and incentivised all technologies. It was only when the basics were sorted out and global leadership in EV parts manufacturing was attained, along with charging infrastructure, China initiated a set of coercive policies by mandating a certain percentage of vehicles to be BEVs.
Almost every automotive manufacturing nation, in order to shift to BEVs, has adopted an approach that supports all EV technologies (HEVs, PHEVs, BEVs), because these technologies have common EV parts. Further, as HEVs have comparatively lower price difference with petrol/diesel vehicles and do not have the shortcomings of BEVs, their consumer acceptance is high. Such a step also helps create the demand for BEV parts, which can make investments viable. In addition, as HEVs have a petrol engine, the replacement of petrol/diesel vehicle by HEVs does not come at the cost of losing existing manufacturing investments. Even countries like Thailand and Indonesia, which have a significant auto manufacturing infrastructure, have adopted a technology-agnostic approach to partially transit to EVs. This, in fact, is the smartest way for creating the BEV and lithium-ion battery manufacturing ecosystem while minimising the woes of transition. These global lessons are important for India.
In sharp contrast, currently there is little or no manufacturing capability for EV parts in India. One must also understand that the auto industry has long product development cycles that involve huge capex and require large volumes, along with long-duration investments. The Indian auto industry is leapfrogging from BS4 emission regulations to BS6 in a highly compressed timeline, involving investments of around `80,000 crore by the auto industry and `60,000 crore by the oil sector. By April 2020, all new vehicles sold will be BS6-compliant and India will be the only country to have BS6-compliant two-wheelers and three-wheelers. This will largely address pollution issues.
Then why the tearing hurry?
It is useful to look at global best practices while finalising own strategy. While drafting the Automotive Mission Plan, I had to heavily lean on global experience. I am happy it became one of the biggest success stories in the history of manufacturing in India. Unfortunately, it is rumoured in the auto sector that there are some free-floating, so-called think tanks/consultants trying to sell fanciful ideas to overenthusiastic clients. I firmly believe we have enough talent in our industry and government to evolve a pragmatic as well as a low-cost sustainable strategy for modern mobility in India, without throwing the $120 billion baby with electric bath water. I also believe that in a free-market economy, only those policies succeed that co-opt industry as equal partners. Why can’t we follow the wise path that our Prime Minister has enunciated: ‘Sabka Sath, Sabka Vikas, Sabka Vishwas’?
The author is former secretary, Government of India, and vice-chancellor, IIFT