It looks like the Government of India is all set to push for electric vehicles (EV) nationally. As part of FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India), it has decided to hold talks to enhance the adoption of EVs. Power minister Piyush Goyal has spoken to various stakeholders, along with NITI Aayog, to explain how the economies of scale can make it more viable in India.
Currently in its pilot phase, FAME offers incentives of Rs 29,000 and Rs 1.38 lakh for two- and four-wheelers respectively. A nationwide roll-out is set to begin 1 April.
In July 2016, the road transport ministry had amended the Central Motor Vehicle Rules, 1989, (CMVR) to allow older vehicles to be retrofitted with a hybrid electric kit. This move was aimed at getting older vehicles to conform to Bharat-II norms, but that it would merely increase the number of low-quality hybrid kits in the market. Delhi’s ill-planned odd-even formula provided an exemption to compressed natural gas (CNG) and electric hybrid vehicles, but, again, this move would have given rise to low-quality kits in the market as a legal loophole for people who wanted to take out their cars.
The problem with EVs is a more chronic version of what plagues vehicles running on either CNG or liquefied petroleum gas (LPG). Lack of refuelling points is the biggest problem with gas-based vehicles, mainly due to the legal monopolies in place. EVs are more or less in the same boat, with Plug In India, a website that promotes the use of EVs listing 206 charging points in India. The figure stood at 194 in July 2016. Twelve new charging stations over a period of six months do not augur well for the ecosystem. Tata Motors in 2010 deferred the launch of the electric version of the Nano citing a lack of charging points, and seven years later, the Nano EV is nowhere in sight.
Public transport is marginally better off with buses covering short distances in urban sectors, and have the added benefit of returning to a depot at the end of the day to charge their batteries. This is where the Union government should direct its focus.
In December 2015, Prime Minister Narendra Modi flagged off an electric bus service designed by the Pune-based firm KPIT Technologies to be used in Parliament premises. However, nothing much has happened since then. In 2014, the Bengaluru Metropolitan Transport Corporation (BMTC) managed to acquire a fully electric bus from Chinese manufacturer Utopia for a two-month trial period. After that, however, the bus went back, and nothing happened after. Why? The cost of the bus was Rs 2 crore – too expensive for BMTC to afford.
As suggested earlier, Indian cities can slowly transition from diesel to electric buses if they start investing in the batteries required. Economies of scale play an important role. If we aggressively push for electric vehicles, we can make up for the cost of investment through reduced expenditure in operations.
To solve the problem, what needs to be addressed is demand and supply. There are two parts to the problem, vehicles and charging stations. The old-school method of pushing up the supply to create a demand will not work in a capitalist society like ours. Supply needs to cater to demand, and that is on a sticky wicket. Goyal solved it in the case of the lighting sector with the LED distribution scheme. In January 2014, under United Progressive Alliance-II, Energy Efficiency Services Limited (EESL) procured LED bulbs at Rs 310 a piece, one that fell sharply to below Rs 100 under Goyal.
In this regard, road transport minister Nitin Gadkari inviting Elon Musk’s Tesla Motors to set up a manufacturing base in India makes perfect sense. With Musk himself hinting at Tesla’s plans to ship to India soon, we can assume that 2018 might see a few of them in India. This will push up the supply and demand for Tesla cars in India, mainly due to the company’s brand value. The government should, logically, ensure that nothing stops Tesla legally from setting up charging stations similar to what Mahindra has done after its purchase of Reva Electric.
Public transport
Public transport needs to be prioritised. The simplest argument in favour of public transport is that it boosts productivity or, at worst, slows down the loss of productivity. In the case of a long trip, a commuter can catch up on reading, watch a film, take a nap or even work on their phone or laptop. The subsidy being given to cars and bikes needs to be extended to buses in order to solve the supply and demand problem. Public transport unfortunately is hindered by archaic laws that allow only government-run bodies to operate, penalising private entities who do. While that is a matter that needs to be sorted out by the centre with guidance from the Aayog, what Mr. Goyal and Mr.Gadkari need to do is:
1. Incentivise EVs for public transport
Public transport system is one of the largest consumers of commercial fuel. With the rise in traffic, the average mileage for buses in different cities has also gone down, resulting in an increase in the cost of purchasing fuel. In Mumbai, the fuel cost amounts to 18.2 per cent of the operational costs while in Bengaluru, it comes to 38.6 per cent. Since power supply is cheaper than fuel, the savings on fuel and the investment on the electric vehicle will balance each other out in the long run.
2. Set up a framework for private participation the charging point market
While long-distance bus operators might not go for electric buses, they can use their land resources to set up charging stations. Similarly, there needs to be a provision for anyone who wishes, to set up a charging station for vehicles.
3. Invest in education
Unless we invest in our education sector, research and development will not bear near-enough fruit. The reliance on foreign technology isn’t really a good idea in India with the varying ecosystem from state to state and issues with power.
The EVs market is just starting to take off. If Mr. Goyal can incentivise it, similar to the LED distribution scheme, the market will thrive, resulting in greater savings, a higher quality of travel and, most importantly, more jobs.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.