NITI Aayog Report Advocates the Elimination of Direct Subsidies to EV Users

In its recently published report, NITI Aayog laid down a framework for the systematic and viable expansion of EVs in India


The NITI Aayog, a policy think tank of the government of India conducted a two-day summit to raise awareness about the various aspects of mobility, and to bring together diverse stakeholders involved in enhancing mobility across different platforms.

Speaking at the summit, Prime Minister Narendra Modi said, “Clean mobility powered by clean energy is the most powerful weapon to fight climate change. This means a pollution-free clean drive, leading to clean air and better living standards for our people. We should champion the idea of clean kilometers,” per Rajya Sabha TV.  The Prime Minister called for leveraging the full potential for vehicle pooling in order to improve private vehicle utilization.

The NITI Aayog released a report at the summit called Zero Emission Vehicles (ZEVs): Towards a Policy Framework. The report highlights that to optimally utilize EVs in the Indian context, the country must recognize its unique mobility pattern.

According to NITI Aayog, an EV policy for India must be tailored to India’s particular needs. “While vehicle growth in India is rapid, ownership has only increased from 53 per 1,000 in 2001 to 167 per 1,000 in 2015. A key difference between India and other countries are the types of vehicles being used. India uses a large variety of motorized transport on roads and its auto-segments are quite different from that of most of the world.”

The report advocates for the elimination of a direct subsidy in the EV policy, and recommends India to be creative in making electric vehicles and its infrastructure economically viable from the very beginning.

The report also says that policy and strategy must be thoughtfully formed for EVs to make business sense. For example, direct financial demand-incentives and subsidies could be replaced by Tradable Auto-Emission Coupons or credits based on CO2 emissions per km, as well as on a sliding scale for vehicle efficiency. This would encourage the market to build efficient vehicles with lower emissions per km. Thus, while vehicle manufacturers exceeding carbon emissions targets would have to purchase coupons or credits, the manufacturers meeting the targets would be rewarded with coupons. The Market could determine the value of these coupons.

This will incentivize the adoption of EVs and low-emission vehicles as well as energy-efficient vehicles at the expense of the vehicles with high emissions and lower efficiencies. Accelerating the availability of the necessary electricity network infrastructure as well as domestically produced technologically superior EVs, chargers, and components will bring down costs and increase the options available for the transportation electrification in India.

The report also details that the prevalence in India of small vehicles such as two-wheelers, three-wheelers, economy four-wheelers and small goods vehicles is unique among large countries. These small vehicles require a unique set of technological and industrial capabilities. Here, India has an opportunity to take a leadership role in the electrification of such small vehicles.

As the nation grows, the increased demand for these vehicles will lay the foundation for a transformational manufacturing and industrial policy. Thus, there needs to be a focus on the timely development of technological expertise and industrial capabilities in the production of small electric vehicles. This approach could not only help India meet its domestic demand, but could simultaneously position the nation as a global leader, especially  as other countries start to look at smaller vehicles to meet their own mobility needs .

Beyond the significant domestic demand for smaller vehicles, another characteristic of the Indian mobility market is its high level of sharing mobility.

Shared mobility in India has exploded and fundamentally has changed  how India travels. Taxi aggregators such as Ola and Uber increased from 130 million rides in 2015 to 500 million rides in 2016, with leading radio taxis to account for 72 percent of the overall market. This high penetration of shared mobility in India increases both vehicle utilization, which plays to the economic advantages of EVs, and also creates natural and large-scale purchases of EVs.

The report also advocates that the initial focus must be on smaller vehicles, at least in the first few years. This will provide a huge initial thrust and strong positive momentum for Indian EV industry. It is possible for India to have a unique impact and scale early with two-wheelers and three-wheelers, including three-wheeler goods vehicles. Special attention is needed to get these vehicles to become economically viable and flourish.

Simultaneously, India needs to ensure that electric buses become viable. With the credits/coupons, buses would become economically viable very quickly with the rationalized customs duties. Additionally, cars used in the government and taxi fleets need to be available early. They should be economically viable with credits/coupons. India could use both charging and swapping to get these vehicles to scale early.

Reiterating the view expressed in the NITI Aayog report, the Prime Minister added, “The government wants to drive investments across the value chain from batteries to smart charging to electric vehicle manufacturing. We need to ensure that public transport is preferred to private modes of travel. The Internet-enabled Connected Sharing Economy is emerging as the fulcrum of mobility. Mobility is a key driver of the economy. Better mobility reduces the burden of travel, and transportation can boost economic growth. It is already a major employer and can create the next generation of jobs.”

Recently, the central government approved a subsidy corpus of ₹55 billion (~$0.78 billion) to be disbursed under the second phase of the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) program, which will be in effect for a five-year period. However,  the final announcement of the subsidy and how will it be disbursed have not been made.

According Mercom’s sources, the government wants to implement certain recommendations made in the NITI Aayog report and there may not be many incentives for the buyers per se. This may turn out be a more strategic move in the long run, as the recommendation may make private ownership of long-range vehicles expensive for a middle-class individual, even after subsidization.  This move may lead to a preference for public transportation; as evidenced by the success of metros in India.