India's efforts to decarbonize its road transport sector
India’s road transport sector contributes about 12% to the country’s CO2 emissions, according to the International Energy Agency, making it the third most greenhouse gas emitting sector after energy and agriculture.
The Union government has been attempting to fast track decarbonising transport for almost a decade with the introduction of the Faster Adoption and Manufacture of Hybrid and Electric Vehicles, or FAME in 2015.
FAME Policy
FAME attempts to generate demand for electric vehicles (EVs) and hybrids by subsidising retail sales, encouraging the manufacture of components and creating and nurturing an EV ecosystem nationwide.
FAME India is a part of the National Electric Mobility Mission Plan.
The scheme covers Hybrid and electric technologies like Mild Hybrid, Strong Hybrid, Plug-in Hybrid and battery Electric Vehicles.
Phase I: Started in 2015 and was completed on 31st March 2019, with an outlay of Rs 895 crore.
The scheme had four focus areas namely, technology development, demand creation, pilot project, and charging infrastructure.
About 2.78 lakh xEVs were supported with total demand incentives.
In addition, 465 buses were sanctioned to various cities/states under this scheme.
FAME India Phase-II:
The Ministry of Heavy Industries is implementing the scheme for five years, starting April 1, 2019, with a total budget of Rs. 10,000 crore.
This phase mainly focuses on supporting the electrification of public & shared transportation and aims to support through demand incentive eBuses, e-3 Wheelers, e-4 Wheeler Passenger Cars and e-2 Wheelers.
Subsidy Changes
The government in 2017, withdrew the subsidy support for “mild hybrids” affecting popular car models.
Moreover, this segment took advantage of about 65% of the subsidy component at the time.
The FAME 2 subsidy amount, in the beginning, was Rs. 10,000 per kilowatt hour (kWh) which the Government later increased to Rs. 15000 per kWh subject to a maximum of 40% of the vehicle cost.
However, a recent announcement from the Government has again reduced the subsidy margin.
With this new announcement, the upper cap has been brought down to a maximum of 15% of an electric vehicle’s cost starting 1st June 2023.
Challenges in EV Adoption
Overall Cost : Electric vehicles tend to have a higher upfront cost compared to conventional internal combustion engine (ICE) vehicles
Expensive Battery: Batteries account for a substantial portion of an electric vehicle's overall cost
Charging Infrastructure: The availability of a robust charging infrastructure is vital for the widespread adoption of electric vehicles.
Range Anxiety: Range anxiety is a term commonly used to explain the anxiety that EV owners or drivers may feel regarding the distance their vehicle may be able to cover with the charging, whether it be full or partial.
Lack of Standardisation: Different manufacturers adopt varying battery chemistries, charging connectors, and powertrain configurations.
Facing Extremities: India experiences extreme weather conditions, including hot summers and cold winters, which can affect the performance and range of electric vehicles.
Import dependence on advanced battery components and technology
Policy Recommendations
Minimum investment of INR 41.5 billion ( US$500 million) required, with no maximum limit on investment.
Manufacturing timeline set at three years to establish facilities and commenced commercial production of EVs, with a mandatory target of achieving 25 percent domestic value addition (DVA) by the third year and 50 percent DVA by the fifth year.
Customs duty of 15 percent (as applicable to CKD units) with a minimum cost, insurance and freight (CIF) value of US$35,000 and above, for a five-year period, contingent upon setting up manufacturing facilities within three years.
The duty foregone on the total number of EV allowed for import would be limited to the investment made or INR 64.84 billion, whichever is lower.
A maximum import limit of 40,000 EVs at the rate of not more than 8,000 per year will be permissible for investments of US$800 million or more. The carryover of unutilized annual import limits, however, will be permitted.
Investment commitments must be backed by a bank guarantee, which will be invoked in case of non-compliance with DVA and minimum investment criteria.
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