Electric vehicles in India ‘no longer needs subsidies’

• Country could become the largest exporter of lithium-ion batteries within next five years with increased EV production and local demand.
• Electric vehicles benefit from a mere 5% tax compared to 28% imposed on internal combustion engine vehicles.

India’s Union Minister of Road and Transport, Nitin Gadkari, recently articulated a significant stance regarding subsidies for electric vehicle (EV) adoption in the country.

Speaking at the BloombergNEF Summit in New Delhi, Gadkari asserted that the time for further government incentives has passed.

His comments come on the heels of Minister of Heavy Industries H D Kumarswamy’s announcement regarding the imminent rollout of FAME-III (Faster Adoption for Manufacturing of Hybrid and Electric Vehicles) in the forthcoming months.

Gadkari pointed out a notable shift in the landscape of lithium-ion battery costs, which plays a crucial role in the pricing of electric vehicles.

He cited a substantial decrease from $150 per kilowatt per hour to approximately $107-$108 kilowatt per hour for batteries, projecting that costs could drop to $90 per kilowatt-hour within the next two years.

The reduction would equalise the cost between electric vehicles and traditional petrol or diesel vehicles, especially when considering the long-term savings on fuel; he emphasised that operating an electric vehicle would be ten times cheaper than its fossil fuel counterparts.

Moreover, Gadkari highlighted the increased demand for electric vehicles and the growing number of manufacturers entering the lithium-ion battery space. With these advancements, he believes the necessity for substantial subsidies has diminished.

A paradigm shift

Currently, there is a stark contrast in Goods and Services Tax (GST) levied on vehicles, with electric vehicles benefiting from a mere five per cent tax compared to the 28 per cent imposed on internal combustion engine vehicles.

The government’s previous initiatives, specifically the FAME-I and FAME-II schemes, were pivotal in incentivising the initial adoption of electric vehicles.

Launched in 2015 and extended through March 2024, these programmes collectively allocated significant financial resources to support the transition toward electric mobility.

Notably, the government, last month, extended the EMPS (Electric Mobility Promotion Scheme 2024) by two months till September 20, 2024, with an enhancement of outlay to Rs778 crore.

As the FAME-II subsidy ended in March 31, 2024, the government introduced the EMPS Scheme for four months from April 1, 2024 to July 31, 2024, with an outlay of Rs500 crore.

However, as the market and technology evolve, Gadkari’s statement suggests a paradigm shift away from dependence on subsidies.

The implication of this policy change could be significant for EV manufacturers in India, many of whom have relied on government incentives to stimulate growth in a still-nascent market. The marketing appeal of lower prices without heavy subsidies will challenge manufacturers to innovate and compete more vigorously.

Gadkari further highlighted India’s rise as the third-largest automobile manufacturer globally and predicted that the country could become the largest exporter of lithium-ion batteries within the next five years with increased EV production and local demand.