Budget 2019: EV Startups Demand Reduction In Import Duty, GST And Better Charging Infrastructure

Back in 2012, following China which after recoding worst air quality during the Beijing Olympics (2008) had geared up the production of electric vehicles (EVs), India too had come up with the National Electric Mobility Mission Plan (NEMMP) which aimed to have 6-7 million EVs by 2020.

However, according to the FAME India, the total number of electric vehicles sold in India still stands at 2,64,953, with a yearly production of around 22K per year. In contrast, China sells over 870K EVs per year accounting for 35% of the world market supply.

At a time when nine out of ten most polluted cities in the world are in India, EV production and infrastructure development is the need-of-the-hour.

Meanwhile, the centre has further extended the EV subsidy scheme dubbed as FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India) in limited capacity up to March 31, 2019. In the latest extension, some restrictions have also been put into place. For instance, EVs not requiring any registration will be excluded from the scope of the scheme, irrespective of the type of battery used in the vehicle.

As the Interim Budget 2019 is set to be announced tomorrow (February 1, 2019), speaking to Inc42, EV-verse startups have made numerous demands and expect the government to look into it.

Akash Gupta, founder and CEO of ebike startup Mobycy said, “In the upcoming Union Budget 2019, we are expecting a major boost from the government for the electric vehicles segment. EVs have been identified to tackle the growing concerns of pollution, CO2 emissions, and ever-degrading air quality. To the same end, we expect the government to deliver on its promise of spending INR 20,000 Cr for the next two years.”

Tarun Mehta, cofounder and CEO, Ather Energy said, “There are three areas that we would like the budget to focus on – component cost, encouraging Make in India and rationalisation & simplification of the GST structure.”

Components like Lithium Ion has been a big issue for EV startups for two reasons. Firstly, India does not produce any Lithium. Secondly, cost attributed to Lithium-Ion which is primarily used as battery packs constitutes a significant portion of the entire vehicle’s value.

This is why China which holds the largest Lithium reserves is also the largest seller of EVs. However, Lithium is not the only issue with the Indian EV industry; but the import duty on other components like motors, charging infrastructure and technology are other issues that the government must look into.

Let’s take a look at the demands of EV startups from the Budget 2019.

The Import Duty Should Be Reduced

As the entire EV industry as of now is entirely dependent upon Lithium-Ion, the import duty on the same must be reduced demand startups.

Mehta said, “To address the key cost challenges that industry faces, we would like to see reduced import duties on Lithium-ion cells, motors and motor controllers. These three accounts for a major proportion of the vehicle cost and any relief on these would provide strong financial support for OEMs to bring out vehicles that are a near-equal performance to petrol/diesel vehicles. Today’s cost structures make it largely unviable to do so. To encourage Make in India, we would recommend an increase in import duty for fully assembled batteries, since there are local options available in India.”

While applauding the government’s increased focus towards EVs, Priyank Agarwal, VP at Delhi-based Exicom Power Solutions which provides battery solutions seconded the demand, “We believe that government is doing a lot of proactive work since last year to make electric mobility possible. However, a clear and consistent policy needs to be in place to give more confidence to the industry so that long-term investment decisions can be made accordingly.  We would like to see reduced import duties on Lithium-ion cells to encourage domestic battery manufacturing.”

According to Gupta, to achieve its vision of 30% EVs hitting the road by 2030, the government needs to make favourable policies for powertrain components and lithium-ion batteries.

Listening to the demand, the Central Board of Indirect Taxes and Customs has now issued a notification which came into effect on January 30, 2019. According to the announcement, the import duties have been reduced to 10%-15% from the earlier 15% to 30% import duties on electric vehicle components.

The Curious Case Of GST

Explaining the curious case of GST, and how it is posing a challenge to the EV manufacturers, Mehta said, “As a manufacturer, we would like the government to do away with the inverted GST structure under which we collect 12% on selling our vehicles and pay 18% GST on raw materials and expenses. Also, the lack of clarity on the refund process adds more complications to this inverted tax structure.”

Agarwal and Sandeep Mukherjee, COO & cofounder Arcis Clean Energy are also of the same opinion. While Agarwal opined that GST for EV battery should be reduced from 18%to 12% on par with the GST rate applicable for EVs, Mukherjee said, “Lower the costs of ownership of EVs through reduced tax slabs and creating affordable finance options.”

Facilitate Charging Infrastructure

While the design, technology and efficiency of EV cars are expected to be in the evolution phase, India lacks charging infrastructure for the EVs needed. This was one of the reasons that Ola’s ambitious plan to roll out 200 EVs in Nagpur failed.

The Ministry of Power on December 14, 2018, had released new guidelines and standards for charging infrastructure.

Demanding a budgetary allocation for the charging infrastructure, Mukherjee said, “The Union Budget 2019 could prove to the shot in the arm that the EV industry needs at the moment. There needs Immediate investment in creating a network of smart charging infrastructure across all metros and Tier 1 cities to boost the adoption of EVs.”

Gupta said, “Consumers should also be incentivised for making the switch to EVs. We are affirmative that the finance minister will consider these critical recommendations before the big unveil.”

EV Startups Need A Long-Term Policy And Support

In the last couple of years, FAME India has failed to help meet the NEMMP target. India’s needs a holistic and multi-ministerial approach and plans to promote the EVs and discourage ICE-based vehicles.

Subhash Bansal, cofounder of used car marketplace Truebil said, “Tax benefit or similar schemes to EV manufacturers and consumers to boost EV sales which is the future of the Automobile industry.”

Let’s be clear about the Centre’s Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme, which continues to be implemented on an ad-hoc basis, doesn’t help automobile manufacturers in chalking out a long-term EV strategy.

To encourage manufacturing EVs, India needs to have a long term policy which would attract investors and manufacturers and make them invest in EVs. Let’s hope the Budget 2019 addresses this.