Although the Budget is yet to provide any clear guideline with regards to aiding India’s thriving EV sector or extending the existing FAME II scheme beyond 2024, Union Finance Minister Nirmala Sitharaman has some positive news for the EV ecosystem. The finance minister has mentioned that a special policy for battery swapping for EVs will be announced. Sitharaman also stated that “interoperability standards will be formulated” which means a uniform standard for EV batteries could be introduced, which will be adhered to by all EV brands.
Standardisation of battery tech
She also mentioned that urban planning will also include the setting up of more public charging stations. Although the setting up of charging stations is on the cards, the finance minister stated that the battery swapping policy will be brought out in consideration of the space constraint in urban areas for the setting up of charging stations at scale. Battery swapping is a process whereby a private EV owner can exchange a depleted battery for a fully charged one, without having to wait for the battery to charge up to a sufficient amount. The policy, when introduced with interoperability standards, will force EV makers to manufacture EVs with standardised, removable/disposable batteries while reducing the cost of EV ownership by negating the need to purchase a new battery - currently the most expensive component of an EV. It’s uncertain how long it would take to introduce standardised battery swapping technology and interoperability measures, but the move will provide much relief to EV owners, as it attempts to solve both the domestic and intra-city charging solutions. That said, from a manufacturer standpoint, the policy only helps electric two-wheelers and electric three-wheelers with private and commercial EV makers not benefitting from the model at all.
At present only selected electric two-wheeler manufacturers like Hero Electric, Okinawa Motors, Simple Energy and Bounce Electric offer the option of battery swapping while Ather Energy, Ola Electric, Tork Motors etc. have non-removable batteries. EV makers like Ather Energy have in the past, expressed scepticism towards removable batteries, citing excessive wear and tear and logistical challenges of home charging as a reason for preferring to establish a charging network. The Budget session also announced developments on the infrastructural front, stating that National Highways will be expanded by 25000km in 2022-23. The finance minister also mentioned that the private sector will be encouraged to provide “sustainable and innovative solutions” to help sustain the EV ecosystem.
Although manufacturers have repeatedly expressed the desire for GST reduction on EV components, and a lower GST slab on manufacturing components, any such reduction is unlikely to be announced. There also doesn’t appear to be any framework that incentivises retro-fitting of ICE vehicles with EV powertrains. The EV sector grew exponentially in 2021, buoyed by the rise in fuel prices and central and state-initiated policies. The Indian EV market, which is expected to grow to a size of $150 billion by 2030 is also expected to attain 30 percent market penetration over the next 8 years.
Higher taxes on fossil fuel
Another deterrent to fossil fuel usage came in the form of an announcement that unblended petrol and diesel will attract an additional excise duty of Rs 2 per litre, effective from October 2022. The finance minister stated that ethanol blending is a priority target for the government. Along with this, the finance minister also announced that import duty on “certain chemicals”, such as methanol, will be reduced to boost local manufacturing.
Policies missing from the budget
For manufacturers of EVs who don’t provide swappable batteries (read: most of them) the policy will be hard to digest. The budget, which otherwise had overarchingly positive overtones, failed to provide a precise framework that can see the automotive sector through in the coming year. While lower customs duty was provided for steel scrap, chemicals, uncut diamonds, mobile phone parts and certain consumer electronics, the GST slab for automotive components remained unchanged.
The 2022 Budget also failed to touch upon the FAME II scheme and its possible extension, although given that it has been extended to 2024, further extensions to the scheme could be announced in future Budgetary hearings. Incentives or policies to promote retro-fitment of existing ICE vehicles with EV powertrains – an area with massive potential for job creation and scrapping of old, polluting vehicles were also noticeably absent from the speech.
Import duty on EV componentry and cells continue to remain unrevised as the central government is prioritising local manufacturing and the Atmanirbhar movement above all else. EV financing – another key area that needed tending to, remains untouched so it looks like banks would not be prioritising loans for purchasing EVs in the immediate future.
The existing PLI scheme for EV manufacturers, although drafted to encourage local manufacturing, has been designed to benefit major international players, with fixed assets worth Rs 3,000 crore and global revenue of Rs 10,000 crore. While manufacturers expected the PLI’s rules to be relaxed in order for smaller EV start-ups – which occupy the majority of India’s EV landscape – at present, all electric two and three-wheeler manufacturers have to look forward to is the upcoming battery swapping policy.
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