A bag of carrots, and a stick.
That’s the crux of the government’s e-mobility drive. The carrots came in the form of the Faster Adoption and Manufacturing of Electric Vehicles Scheme (FAME-1), FAME-2 and the Production Linked Incentives (PLI) Scheme, aimed at stimulating the manufacture and adoption of Electric Vehicles (EVs) and ramping up the setting up of supporting infrastructure and allied industries, including battery manufacturing. The stick has been displayed only occasionally, in the form of the threat of higher taxes on vehicles that use traditional Internal Combustion Engines (ICE).
Parallelly, the government has been encouraging State Governments to develop their own programmes to promote e-mobility. States have not held back, offering direct discounts on the purchase of electric vehicles and road tax exemptions. With the policy ecosystem geared towards e-mobility, companies from across the spectrum have jumped into the arena.
Whether it’s Ola, which decided to branch out from a cab aggregation business into electric 2-wheeler production, or incumbents like Hero and TVS and Bajaj and M&M and Tata Motors who decided to add e-mobility and green-energy engines to already thriving ICE portfolios, or Exide and Amara Raja Batteries which decided to branch out into e-battery technology — the craze has cottoned on, and everyone wants a piece of the action and a finger in multiple electrifying pies. There are over 90 startups in India’s e-mobility space alone, and more are being born every month.
There’s no doubt that the push is paying off. EV sales have picked up rapidly, investment in new technology is soaring, and early apprehensions over safety (like the propensity of batteries and vehicles to spontaneously combust) have largely been extinguished. Two of these new electric mobility startups – Ola Electric & Ather Energy – have either turned or have switched on their indicators to turn on to Dalal Street.
A lot of this has been driven by the noble desire to safeguard the environmental for future generations. All data points indicate that a switch to cleaner and greener energy sources to power mobility will ultimately help the environment, at least by slowing down the effects of pollution. However, this is a long-term play; a really, really long-term play.
In the short term, we’re probably just exchanging one source of pollution for another – because so long as India is dependent on coal-based power plants to produce electricity, there’s probably only a marginal difference in the pollution from fossil fuel engines and the power needed to charge electric engines. So until electricity is produced by non-polluting means, we will continue burning fossil fuels in one form or the other.
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For the government, however, the full-court press on e-mobility is more than just taking active steps to combat a global crisis. It’s a stance that could deliver strong financial gains in the long term.
Here’s why: so far, state governments have successfully fended off efforts to bring petrol and diesel under the ambit of Goods & Services Tax (GST). Any value-added tax (VAT) levied on these items is the prerogative of state governments, and this money flows into state coffers.
Electric vehicle charging, however, falls under the ambit of GST, which means the Centre stands to make some money off the widespread use of such charging stations. The more widespread the use of charging stations, the more GST the centre gets. The states will still get a share, but it will be just that – a share.
Even if consumers were to charge their vehicles at home using private charging stations, it still means installation charges, which come with a GST component, and, on a more prolonged basis, electricity consumption. Electricity bills, of course, come loaded with GST.
So, as the Indian consumer switches to EVs and greener technology, the use of petrol and diesel will go down — meaning GST collections will rise while states’ revenues from VAT will not.
Surprisingly, no state government seems to have taken up this matter in any substantial form thus far and asked for safeguards. It has definitely not come up at any GST Council Meeting so far.
Maybe state governments are not worried just yet, because EV adoption is still in its nascency, and the technology still fledgling – so it’s not a problem for today. Or maybe they are confident they will be able to make up any lost revenue by tinkering with duties and taxes that are still their due — like road tax on the sale of EVs, licence fees for setting up charging stations, the levies from transactions involving the land used for such charging stations, VAT on fossil fuels including Aviation Turbine Fuel, and so on.
Nevertheless, the fact remains that this “extra” money the e-revolution is yielding the Centre in higher GST is bound to add up over the years, especially if the Centre’s target of completely stopping the production of diesel and petrol engines does play out. All in all, state governments have a relatively narrow window (spanning a couple of decades or thereabouts) to put on their thinking caps and come up with alternative revenue streams or seek a special compensation cess that can make up for revenues they have lost, or stand to lose, from the country’s rapidly accelerating transition to EVs.
For the Centre, this promise of higher GST revenues may be reason enough to push harder on e-mobility rather than slow down. From stepping up incentives that will result in spurring supply and demand, to opening up the sector to foreign players and technology – it's time to think of what more it can do to put ICE on ice, quicker. The government can then sleep comfortable in the knowledge that anything extra it doles out through these concessions will come back to its coffers a hundred-fold, a lot of it in the form of Goods & Services Tax.
The “we’re doing our part to save the future of the planet” bit is then just the icing on the cake.
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