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Exclusive: Govt may levy another tax on petrol, diesel cars to subsidise electric vehicles

This move will help cut the direct subsidy given by the government on purchase of fully electric and hybrid vehicles

December 12, 2018 / 04:52 PM IST

To discourage buyers of new car powered by petrol and diesel engines, the Centre is believed to be contemplating slapping a cess on all fossil fuel cars and SUVs that will be used to incentivise sale of electric cars.

This move will help cut direct subsidy given by the government on purchase of fully electric and hybrid vehicles, including two and three-wheelers, under the Faster Adoption and Manufacturing of Electric and Hybrid Vehicle (FAME) scheme.

“Instead of increasing the Finance Department’s burden of providing subsidies to electric vehicle buyers through a timeless scheme of incentives, the government is actively considering putting a green tax on all petrol and diesel cars,” a source said.

More than 2.6 lakh vehicles have been provided incentives till date by the government, resulting in a claimed saving of 37 million litres of fossil fuel. A subsidy of more than Rs 305 crore has been provided by the Center so far, the FAME website claims.

The subsidies range from Rs 7,500 on low power electric scooters to Rs 61 lakh provided on hybrid buses and nearly Rs 1 crore on fully electric buses. Sales of electric vehicles have started to gather pace only during 2017 and 2018 but manufacturers have been reluctant to launch cars and SUV powered by an electric motors due to the steep initial cost of acquisition.


“An additional Rs 2,000 or Rs 2500 on a car or Rs 300 on a two wheeler will not put any significant burden on the buyers, but will generate a huge cess pool for the government,” said the executive. The Indian passenger vehicle market is 3.5 million units and the two-wheeler market is 22 million units.

If the above cess is slapped onto new cars, the amount thus generated every year will be more than five times compared to the subsidy given away by the government till date. To be sure the government had introduced a 1 percent cess on small petrol cars and 3 percent cess on diesel cars, which it has labelled as green/infrastructure cess.

Going against the popular expectation during the inaugural MOVE Summit organised in the capital in September, which also featured heads of over 30 global companies, Prime Minister Narendra Modi did not announce any multi-crore subsidy under FAME II scheme.

Media reports in September had claimed that the Finance Ministry had approved Rs 5,500 crore for FAME II programme and the Modi would announce its public rollout at the MOVE Summit. Modi, however, urged vehicle makers to not just make electric vehicles, but make lithium ion batteries in India to bring down the overall cost of an electric vehicle.
Swaraj Baggonkar
first published: Dec 12, 2018 09:40 am
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