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India to promote electric vehicle race with latest drive in budget

IBEF:  July 08, 2019

India has joined hands with government in China and Europe that have supported the progress of the emerging electric vehicle (EV) manufacturing by offering extensive fiscal incentives and a favourable regulatory environment.

The government has commenced from 1 April 2019, the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME 2) scheme, with an expenditure of Rs. 10,000 crores (US$ 139 million), promoting its goal to increase number of EV on road to fight the problem of pollution and trim the cost of oil import. Even though this investment is not as much when compared to the developing counties, but it boosts the confidence of the manufacturers, investors and of customers.

In the Union Budget, finance minister Nirmala Sitharaman announced income tax rebates of up to ₹1.5 lakh (US$ 0.002085 million) to customers on interest paid on loans to buy electric vehicles, with a total exemption benefit of ₹2.5 lakh (US$ 0.003475 million) over the entire loan period. The minister also announced customs duty exemption on lithium–ion cells, which will further decrease the cost of lithium-ion batteries in India as they are not manufactured locally. Makers of components such as solar electric charging infrastructure and lithium storage batteries and other components will be offered investment linked income tax exemptions under Section 35 AD of the Income Tax Act, and other indirect tax benefits.

These steps are much alike from China and Europe. Although in India there is no set target for automakers to transform a specific part of their total vehicle production to electric or other electrified offerings. The NITI-Aayog is pondering over a policy proposal to ban all internal combustion engine two-wheelers under 150cc by 2025 and three-wheelers by 2023.

In developed nations, government subsidies are provided for 20-25 per cent of the vehicle cost. Tax breaks offers may not have much impact until they are escorted by non-fiscal incentives. Also, there should be a mandate that leading manufacturers should have a certain share of their sales from EVs after a time period. The Indian government has demonstrated some intention from its side to develop India as a potential market for such vehicles.

The Indian government’s initiative to decrease goods and services tax on EVs to 5 per cent from the existing 12 per cent—compared to the tax range of 29 per cent to 45 per cent on internal combustion ones—can spur demand for such vehicles here as well.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.