Both electric mobility and battery manufacturing are sunrise industries that must be encouraged if India is to become a globally competitive player in the coming decades.
Rajiv Kumar and Anil Srivastava
Fiscal incentives to promote Electric Vehicles, in the form of FAME (Faster Adoption and Manufacturing of Electric Vehicles), were launched in 2015 for a period of two years. These were later extended up to March, 2019. With its outlay of Rs 450 crore during the last four years, FAME I helped about 2.63 lakh electric/hybrid vehicles, including 1.4 lakh two-wheelers (E-2W) and 1.01 lakh four-wheelers (E-4W). These are already on the road all over the country. But, this has not enabled us to accelerate the transition to electric mobility in the same way as countries like China have done by adopting a holistic approach and a time-bound plan for completing the transition.
With learnings from FAME I, the revised FAME II was announced with an outlay of Rs 10,000 crore and a target to incentivise 10 lakh E-2W, 5 lakh E-3W, 55,000 E-4W and 7,000 buses (on OPEX basis) by March 2022. FAME II has been welcomed by all stakeholders, including industry and associations, for the clear roadmap that it provides for the transition to electric and connected mobility.
In the 2W & 3W segment, 21.2 million ICE 2W and 0.7 million ICE 3W were produced last year and, with a share of 9% in manufacturing, had an employment of nearly 12 million. Out of these around 15%, i.e., 3 million 2W, were exported. The CAGR of 2W & 3W vehicles is expected to be around 8-9% for the next ten years. Thus, by 2025, India will be producing nearly 28 million 2W and another 2-3 million 3W. This provides Indian companies with a unique opportunity to leverage domestic markets to achieve globally competitive scale and economies of production. Having missed the first electronic revolution in the 1980s and the semiconductor fabrication opportunity in the 1990s, India can hardly afford to miss this emerging opportunity, offered by the transition to electric mobility, that combines multiple high technology industries. We have to be right in the midst and then, hopefully, achieve pole position in this sunrise industry.
It thus becomes critical for us to adopt a time-bound roadmap for the conversion to 2W & 3W to electric vehicles. If we do not pursue this at the policy level and if companies and economies do not adapt, we risk losing out on a seat at the table in the next generation of technology and industrial development.
Both electric mobility and battery manufacturing are sunrise industries that must be encouraged if India is to become a globally competitive player in the coming decades. Otherwise, we not only stand to lose all export opportunities that are bound to open up in the coming years but also risk becoming a dumping ground for second-rate imported EVs from China and elsewhere.
Investment by industry carries inherent risk, and all our efforts should be directed toward creating a domestic market for both electric vehicles and batteries, in order to ensure OEMs and battery manufacturers have enough certainty of off-takes before they put in their investments in new manufacturing units to attain globally competitive position. India has lost out in the solar power generation and mobile/smartphone industry previously and must act quickly to secure a position in the sunrise industry of battery storage and electric mobility. Delaying this transition risks missing the opportunity at hand.
The Steering Committee of National Mission on Transformative Mobility & Battery Storage has recommended that after March 31, 2023, only E-3W (with lithium ion or other advanced battery chemistry only) shall be sold under the category of 3W and, after March 31, 2025, all new sales under the category of 2W below 150cc shall be E2W (with lithium ion or other advanced battery chemistry only).
Six years up to March 2025 should surely be sufficient time for the industry to plan its transition. Moreover, NITI Aayog has always been open and ready to consider alternative time-bound plans. However, the suggestion to do without a transition plan and adopt a so-called ‘market-based or muddling through’ stance should not be acceptable to anybody who is wedded to the national interest or, indeed, even to the Indian automobile industry’s interests. Clearly, those companies who wish to export ICE two- and three-wheelers will have the fullest freedom to do so even after the domestic sales of these vehicles cease in the domestic market and, further, those producing 2W with engines higher than 150 cc will continue to do so.
We must emphasise that NITI Aayog has had extensive consultations with all segments of the industry in the run-up to the Mobility Conference that we organised in October 2018. And, in the interest of building the necessary trust between the industry and the Government, we are, of course, open to further consultations, as long as they are aimed at reaching a time-bound transition plan towards achieving 100% electric and connected mobility.
We would, of course, have to ensure that the batteries (lithium ion or advanced chemistry) are domestically manufactured and at globally competitive prices. The scale offered by the transition to EVs will allow world-competitive capacities to come up in India. Globally-competitive manufacturing of advanced chemistry batteries could be achieved through a challenge process to select manufacturers, who could then be offered a package of facilitation and fiscal incentives to induce them to rapidly create necessary capacities in the country. This would also be used for other industries like micro-electronics, power storage etc. Using the advantage of large scale domestic demand in the EV sector, we would be able to create a dynamic and vibrant storage battery in the country.
Moreover, battery costs are expected to fall over the next few years as volume increases and economies of scale are achieved. Expert analysis anticipates that India’s annual battery market size could be as large as $9 billion by 2025, the majority of which will be driven by electric vehicles (this assumes close to 100% new sales of electric two- and three-wheelers by 2025, along with modest market penetration of other segments). Private sector companies and start-ups are developing charging solutions as well as battery swapping business models to encourage the transition to electric mobility. These manufacturing capacities and business models will provide significant additional sources of economic growth.
Although around 20% of minerals in the current battery chemistry need to be sourced from outside, the R&D on material recovery and recycling from batteries would help address this scarcity. This can create a domestic reserve of minerals over time. The government, too, is exploring potential rights to international supply chains to further address this concern. In any case, battery chemistry is evolving at a rapid pace with the attempt to replace lithium as the sole principal component. And in the medium-to-long term, the transition to hydrogen will surely be initiated as is already beginning to happen in China and Japan. On all counts, therefore, including that of fresh employment generation, India simply cannot afford to miss this opportunity and cannot adopt a ‘muddling through’ policy stance as some stakeholder, very surprisingly, seems to advocate.
(The authors are with the NITI Aayog Views are personal)