Contributed by: Samvad Partners
Is this another paradigm shift?
The automotive industry has been instrumental in not only bringing profitability, but with substantial strategic investments coupled with simpler government regulations and nationalization techniques, have bolstered the era of internal combustion engines (ICE) into a dynamic sector. While utilization, or more so, over utilization of traditional resources is one of the main component ‘motoring’ this dynamic industry, however, the depleting fossil fuels/natural resources, climate change and growing health and environment related concerns during the COVID-19 pandemic has started to encourage a transition from the ICE vehicles. In this regard, every country as well as government think tanks, who has vowed to reduce its carbon emissions/carbon footprints or adopt a net zero carbon emission project to meet the goals of the Paris Agreement adopted under the United Nations Framework Convention on Climate Change, 1992 (ratified by 189 countries including India), has been forced to act out of necessity and make an important shift towards adapting more energy efficient, sustainable as well as affordable automobility by introducing electric vehicles or e-mobility in near future. India, being next in line driving a global uptick in carbon emissions, right after China, has seen an encouraging growth in electric vehicles, both in terms of investments and policy adoption, even during the current pandemic which has proven to be an economic set back, worldwide.
Is it a sustainable ecosystem which is fit for India?
During the nationwide lockdowns imposed due to the rising cases of COVID-19 in India, electric vehicles have been used to cover an array of services, in both categories as personal and commercial vehicle. Whilst the sale of electric vehicles has been adversely impacted recently on account of the pandemic, the reliable nature coupled with government subsidies making it cost competitive with ICE vehicles, has made electric vehicles a viable option for companies engaged in the business of logistic operations such as local or hyperlocal deliveries or of passenger and personal transportation. The benefits being offered by the government to promote this sector has aroused interests of both financial and strategic investors and has paved the way to develop a cohesive e-mobility eco system in India. From Ola Electric Mobility Private Limited (“Ola Electric”) raising around USD 250 million from Softbank Group Corp. for strengthening its electric vehicle fleet followed by its acquisition of a Netherland based electric two-wheeler start up ‘Etergo’ for an undisclosed amount to Robert Bosch Investment Netherlands B.V, acquiring a 26% stake in SUN Mobility, several other electric mobility focused startups such as Ather Energy, Ultraviolette Automotive, Lithium Cabs, Yulu, Blu Smart and Euler Motors have raised considerable investments.
Incentives offered by the government in this space
Department of Heavy Industries (“DHI”), the nodal agency for the automotive sector under Government of India, has been instrumental in introducing the National Mission for Electric Mobility Plan 2020 (“NMEMP 20”) in the year 2012, leading to the notification of the Scheme for Faster Adoption and Manufacturing of (Hybrid & Electric Vehicles) in India (“FAME India”) and its second phase (“FAME II”) on March 13, 2015 and March 8, 2019, respectively. Both FAME India and FAME II have introduced incentives towards supporting and developing the market of the hybrid/electric vehicles and its manufacturing eco-system along with creating an autonomous body for implementation of FAME India under the aegis of National Automotive Board (“NAB”). Such benefits/incentives, inter alia, include delivery of demand incentives on issuance of eligibility certificates for all approved e vehicle models introduced under FAME II. The validity of the certificates issued for all e-vehicles have now been extended by NAB till December 31, 2020, with such certificates required to be revalidated prior to expiry of the extended period.
Various state governments have either amended their existing industrial promotion policy or have published a state specific draft on electric vehicles and e-mobility, in order to roll out various benefit and incentive packages for adoption and promotion of e -vehicles in such states. Governments for the states of Andhra Pradesh, Karnataka, Maharashtra, Kerala, Tamil Nadu, Bihar and Uttar Pradesh are the major front runners in notifying their state specific EV policies since the year 2017 with Government of National Capital Territory (Delhi), joining the e-mobility league by notifying the Delhi Electric Vehicles Policy, 2020 on August 7, 2020, making it another major state in India to publish and notify policy measures for adoption of electric vehicles. These state specific policies are tuned to support every major aspect of e-mobility, accelerate adoption of electric vehicles and set out the benefits and incentives offered by such state governments in the areas of manufacturing, charging infrastructure, demand creation, research and development for generating more viable projects.
The components which drive the functionality of any electric vehicle requires development of core products, original equipment manufacturers (OEMs), battery manufacturers/operators and charging infrastructure providers, each of which segment forms an important ground for considering the viability of electric vehicles, in the long run. Currently, one of the major hurdles faced by the EV operators is the lack of charging infrastructure, which even if present, are few or far apart and makes operation of four-wheeler EVs for longer distances difficult. In order to resolve the issue around charging infrastructure, DHI has issued an Expression of Interest (EOI), on October 7, 2020, inviting proposals from both private and public sector companies for deployment of EV charging infrastructure on highways and expressways such as long range/heavy duty charging stations and thereby, further boosting e-mobility in India.
Regulations around e-mobility in India
While e-mobility as a concept in India, is still a developing one and has been attracting impressive investments, however, the regulations around electric vehicles remains at a nascent stage with no uniform or special law passed for regulating the manufacturing, sale or culpability around electric vehicles, such as, the United Kingdom who has passed the Automated and Electric Vehicles Act, 2018, governing various provisions of automated and electric vehicles in the United Kingdom and France, who has passed Law (n. 2019-1428 of 24 December 2019) on the orientation of mobility.
Since the regulations around e-mobility are state specific and more in the nature of incentivized guidelines rather than a codified law, chances of following more than one regulation may set the wrong tone and force the EV players to adhere to more than one state specific EV guidelines. In order to understand this overlapping of the state specific regulation, it is important to analyse these EV policies on a few important parameters (for ease of reference, we have limited the comparison to the EV policies adopted by the states of Maharashtra, Andhra Pradesh, Delhi and Karnataka owing to a higher investor presence in these states):
Vehicle Category for availability of Incentives: Under the Maharashtra Electric Vehicle Policy, 2018 (“Maharashtra EV Policy”) and Delhi Electric Vehicles Policy, 2020 (“Delhi EV Policy”), incentives are provided only for battery electric vehicles (“BEV”), whereas under the Andhra Pradesh Electric Mobility Policy 2018 (“AP EV Policy”), a distinction have been made between BEV and fuel celled electric vehicles (powered by hydrogen cells) for the purpose of availing any benefits and incentives therein. Under the Karnataka State Electric Vehicle and Energy Storage Policy, 2017 (“Karnataka EV Policy”), the term “Electric Vehicle” has been used loosely and appears to apply to any vehicle operating with a battery cell.
Certain Financial incentives/targeted investments: All policies are directed towards promoting investment in E-motors. The Maharashtra EV Policy targets investment generation of INR 25,000 crores in EV, EV manufacturing and component manufacturing, battery manufacturing/assembly enterprises and charging infrastructure. Both AP EV Policy and Karnataka EV Policy provide for reimbursement of varying percentage thresholds of fixed capital investment depending on whether it is micro, small, medium, large or a mega industry. Under the Delhi EV Policy, concept of ‘Feebate’ has been introduced wherein inefficient polluting vehicles incur a surcharge (fee) while efficient vehicles receive a rebate. Further, the Delhi EV Policy has also provided for a purchase incentive on battery capacity per vehicle along with scrapping incentive for scrapping and de-registering old ICE vehicles.
Tax Exemptions: Both Maharashtra EV Policy and Delhi EV Policy have introduced exemptions from payment of road tax and registration fees for BEV, whereas AP EV Policy provides for 100% (one hundred percent) reimbursement of the registration charges and road taxes paid on sale of any electric vehicles. Under Karnataka EV Policy, exemptions have been provided from payment of taxes on all electric non transport vehicles and transport vehicles including e-rickshaws and e-carts.
Charging Infrastructure: Maharashtra EV Policy has envisaged for 4 (four) types of charging infrastructures namely (a) domestic user facility (for individuals); (b) public charging facility (government facilities, bus depots, railway stations and fuel stations); (c) common charging facility (malls, residential buildings, educational institutions); and (d) commercial charging facility (roadside, fuel stations).Under the AP EV Policy, power distribution companies or DISCOMs have been given the responsibility to set up charging networks in government buildings and other public places for access by both government and private vehicles, with public parking spaces being mandated to have charging stations. The Delhi EV Policy has made provision for only private charging and public charging infrastructure and charging facilities at malls, residential buildings and bus depots have been included under the category of ‘public charging infrastructure’. Apart from providing loan incentives for setting up charging stations, Karnataka EV Policy is silent on the type of charging infrastructures that are encouraged to be developed in the state.
Battery recycling: Both Maharashtra EV Policy and Karnataka EV Policy are silent on the techniques and benefits to be awarded for recycling batteries of BEV. Whilst Delhi EV Policy has encouraged setting up of recycling business in collaboration with EV operators and manufacturers focusing on mining of rare materials within the battery for re use, AP EV Policy has only proposed incentivization of battery recycling plants to mine for compounds from used batteries without any involvement of EV operators and manufacturers.
In addition to the above guidelines, EV operators and manufacturers are required to abide by the notifications issued by various ministries under Government of India in addition to DHI such as Ministry of Road Transport and Highways (“MoRTH”). In a recent notification, MoRTH has allowed registration and sale of electric vehicles without a pre fitted battery, in order to delink the cost of batteries which accounts for 30-40% of the total vehicle cost, thus encouraging the EV manufacturers and OEM manufacturers to price their products competitively which in turn shall decrease the price of the EVs for adoption by consumers. Additionally, the recent amendment to the Motor Vehicles Act, 1988 (“MV Act”) has done away with the provision of keeping ready to use or temporary use spare wheels in certain vehicles. This amendment has been perceived to be pro-EV as the extra space (only in case of four-wheeler vehicles) can be utilized by the EVs to include larger batteries for high powered functionality.
While these policies and amendments are welcoming steps for incentivizing the e-mobility sector, tracing these state specific guidelines, notifications by various ministries, amendments to the MV Act and state specific motor vehicles rules could be burdensome for the EV players, setting up their operations in various states or understanding the regulations/guidelines pertaining to charging infrastructure or battery recycling across various states. Given the increasing demand of switching to an alternative mode of transport which has gained a worldwide momentum as well as increase in investor participation in this space, it would be beneficial to notify rules specific to the operation, manufacture and sale of EVs in India under the MV Act or pass a separate legislation governing various provisions of e-mobility in India.
Contributed by Samvad Partners
The above article has been authored by Ms. Anisha Shroff(Partner) and Ms. Sharanya Kundu(Associate)