Integrated approach for EVs

Customs duty is not the way to fast lane

The government of India has rolled out several initiatives over the past few years to increase the adoption of electric vehicles (EVs). Indian cities are among the most polluted in the world and it makes sense for the government to push EVs as it would help curb vehicular pollution. Since EV sales are expected to grow at a faster pace, foreign manufacturers are also getting interested in the Indian market. The chief executive of Tesla, Elon Musk, for instance, has said his company wants to launch electric cars in India, “…but import duties are the highest in the world by far of any large country”. The company is also reportedly discussing the issue with the government. India imposes 60 per cent duty on imported cars worth up to $40,000, and 100 per cent for more expensive vehicles.

For a country looking to promote EVs, cutting duties to make electric cars cheaper would be an easy policy choice. However, the government would do well to follow a more informed approach. The government should always take into account the overall impact of any policy change. Expectedly, Mr Musk’s remarks on duty evoked reactions. While Hyundai India Managing Director S S Kim supported the argument, Bhavish Aggarwal of Ola, which has ambitious plans in the EV space, disagreed and noted that India should build indigenously and attract global companies to make in India. The government should engage with global firms to help set up plants in India. Ola is building capacity to manufacture e-scooters. India has a significant automotive manufacturing base and should be able to develop a value chain for EVs to a large extent.

The government has taken several steps to promote EVs, such as the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme, lower goods and services tax, and deduction in personal income tax. It is also providing incentives under the production-linked incentive scheme to help increase the production of batteries. In terms of reducing Customs duty, there is a case for progressively bringing it down for all cars. This would increase competition and improve quality. But the government should avoid cutting duty only on EVs because it would go further against the conventional automotive industry and reduce incentives for firms to produce better cars, which can become counterproductive. The government should ideally avoid outright picking the winning technology. A fair bit of research, for instance, is happening in the area of hydrogen fuel cells, which would be even more environmentally friendly. In the context of EVs, it is important to note that the source for power is still predominantly coal.

Besides, there are several other issues that will need to be addressed before the adoption of EVs can increase. India needs a robust charging infrastructure. According to a new report, India will need about 400,000 charging stations to serve about 2 million EVs that could possibly hit its roads by 2026. India currently has about 1,800 charging stations. Although the government has issued guidelines for charging and de-licensed charging activity, this may not be enough. At a broader level, transparent pricing of power will be a key issue. A significant shift and an increase in power demand at non-commercial rates could affect state-run distribution companies, which are anyway drowning in debt, and ultimately damage state government finances. The government would, thus, be well advised to work on the EV ecosystem more holistically — import duty is just one aspect.