Can the Budget push boost electric car market?

Finance minister Nirmala Sitharaman, in the Union Budget, laid out a plan to make the country a manufacturing hub of electric cars, as part of which, the government will allocate funds for building infrastructure and provide tax exemptions to buyers for encouraging the purchase of electric cars. Furthermore, manufacturers have been assured of customs duty exemptions for importing electric vehicle parts for manufacturing.

The government will also commence the second phase of Faster Adoption and Manufacturing of Hybrid and Electronic Vehicles in India - also known as FAME - that will help realise the National Electric Mobility Mission Plan 2020, for which the government has allocated an investment of Rs 10,000 crore. While presenting the Budget, Sitharaman said that the country must emphasise on electric vehicles (EVs) as these represent the next generation in sustainable mobility. Appropriate policy measures are needed to lower the overall lifetime ownership costs to make them an attractive alternative to customers.

The minister announced the reduction of GST on EVs to 5 per cent from 12 per cent. Also, in order to  make EVs affordable for customers, the government will provide additional income tax exemptions of Rs 1.5 lakh on the interest paid on loans taken to purchase EVs. This amounts to a benefit of around Rs 2.5 lakh over the loan period, said the FM.

According to the Economic Survey, the market share of electric cars is only 0.06 per cent in India when compared to 2 per cent in China and 39 per cent in Norway. Reasons for lesser market presence of EVs in India are lack of charging infrastructure and high cost. "Access to fast-charging facilities must be fostered to increase the market share of electric vehicles," the survey says.

Considering EVs operate on rechargeable batteries, the lack of charging infrastructure is a pressing concern, which surely stands in the way of the expansion of the market in India. Additionally, the time taken by EVs to charge its batteries is not only a matter of expense but also cause inconvenience on a logistical level. The segment needs investments from private players to enhance the infrastructure to counter these problems. It's no surprise that EVs running on sophisticated technology would be expensive and it will force automobile giants, which invested millions for its research and developments, to recover their investments by pricing it high. The GST reduction and tax exemption on loans are intended to keep the cost of EVs affordable. Analysts predict that these budgetary decisions will only help boost the market for EVs in India.

Also, in the past when the government was taking baby steps to enhance e-mobility in the country, participation from private car manufactures in India hasn't been encouraging enough. Mahindra and Tata Motors are two auto majors that have announced their interests in involving themselves with e-cars, while Maruti Suzuki, Hyundai and Honda are yet to get convinced of the India's electric car market and announce their plans.

Last year, Mahindra announced that it would invest over Rs 500 crore in its Electric Vehicle (EV) project at its plant in Chakan. The additional investment was to be utilised towards product development and capacity enhancement for electric vehicles and related components. It already manufacturers and sells e-Verito and e2o PLUS, which is a facelift of Reva that they shut down because of poor sales volume.

On the other hand, Tata motors launched its first electric car, a variant of Nano, years ago. However, it failed to survive the test of time. Tata recently launched electric variant of the sedan Tigor and it received positive response from the market. Jaguar Land Rover, subsidiary of Tata Motors, also announced its plan to build an electric car manufacturing in the UK.

Only time will tell whether the EV market will pick up in India with reforms and investments that the government has envisioned.

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