The automotive industry and its ecosystem the world over is poised for a radical change with the increasing need to shift to non-fossil fuel based energy for cleaner transportation to protect the environment. This poses a big challenge for policymakers — retaining the competitiveness of domestic industry during the transition. India deserves a pat on the back for the radical transformation from a minor manufacturer of automobiles to the fastest growing auto-hub within a short span by adopting a consistent, well thought out Automotive Mission Plan 2006-2016 (AMP). Continuous nurturing coupled with a progressive policy has led to India emerging as the fifth largest automobile manufacturing country in the world with the auto sector contributing 7 per cent to the GDP and nearly 49 per cent to the manufacturing GDP. The auto industry provides direct and indirect employment to 32 million people with an annual turnover of nearly Rs 6,00,000 crore and 20 million vehicles manufactured per year. This success has been possible without the adoption of coercive policies for localisation of production as is done in China. Positive engagement with global giants was key to establishing a globally competitive manufacturing base in India. This led to the fast and seamless transfer of technology and skill development and the ambitious AMP target of Rs 1,57,500 crore investment was exceeded. This was a modest beginning to the Make in India story which is a national mission under the current government.
The world is still largely dependent on fossil fuels for transportation but there is now an increased momentum towards alternate energy sources. Besides the environment, India also has strategic and economic interest in shifting away from fossil fuels. In this context, electric mobility is seen as the way forward. The challenge ahead is not only on how to expedite electric mobility but also to take the industry forward without losing India’s current competitive advantage.
Electric mobility has multiple options which include pure electric vehicles (BEVs) that use energy stored in batteries obtained from the grid, hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and fuel cell vehicles (FCVs). Due to existing limitations, the fast adoption of electric vehicles needs policy interventions and support from the government. Unlike China, India has not invested in technology, particularly for the production of batteries. China has been aggressively pushing for electric vehicles through huge government funding only after establishing a competitive industry for producing lithium ion batteries, motors, controllers, etc. It is a strategic imperative for China to give a big push to electric vehicles in spite of continuing domestic consumer resistance. China aspires to become the biggest exporter of electric vehicles and its components in the world.
Today, there is a clear divide amongst Indian policymakers regarding the right path for the adoption of electric mobility. One set of policy advocates plead for a “transformational approach” to aggressively promote only BEVs, excluding all other forms of electric mobility technologies. They prescribe lower taxes for BEVs, investments for the overnight establishment of charging infrastructure, facilitation of battery-swapping business models and the setting up of advanced lithium ion battery manufacturing facilities at an unprecedented scale. The fatal flaw in this “energy only” approach is that India, unlike China, does not have the indigenous technology for batteries and other components and will be critically dependent on imports, particularly from China.
Secondly, such huge infrastructure cannot come up so quickly and will also involve significant improvement in the existing electric distribution infrastructure. Further, with the existing energy generation mix in India, the overall well-to-wheel carbon emissions of BEVs are not better than HEVs. As such, this may well merely shift the emissions away from cities to regions that produce power.
Global experience indicates that most countries, barring China, have adopted a technology-neutral approach and supported the full range of electric vehicle technologies till such time that they attained market acceptability. This technology agnostic strategy helps market forces determine the optimum technology and allows for the domestic industry and customers to shift to cleaner technologies without disruption. It is based on the fact that HEVs and PHEVs do not compete but rather complement and support faster adoption of BEVs. That is because all these technologies have similar components that can together create necessary volumes to bring down the prices of these components. This inclusive approach accommodates segments like larger vehicles with usage patterns of long distance travel, higher payload etc., which cannot be served by BEVs. Moreover, this also prevents policymakers from placing all their resources in BEVs.
Past experience has established, given the huge success of AMP, that the right approach is the “pragmatic-incremental approach” which will allow India to build on the achievements made so far. Instead of a “one size fit all” electric mobility policy, there is a need for a differential approach that factors in the segment-wise ease to BEV adoption. The government should push more aggressively for the BEV option for of two-wheelers and three-wheelers and support the full range of electric technologies for other vehicle segments with a clear roadmap for the evolution towards FCVs. In this context, putting hybrid vehicles in the highest GST bracket is, at best, baffling as it will only encourage consumers to buy petrol/diesel cars. Hopefully, to reduce fossil fuel consumption, lower pollution and encourage electric mobility, a more holistic approach will be adopted.