EV Adoption in India
Subsidies have long served as catalysts for technological adoption and market stimulation in sectors that align with broader societal and environmental objectives. The Electric Vehicle (EV) market in India is a prime example of such a sector. By offering subsidies and incentives, the government has aimed to make EVs a more appealing and economically viable alternative to conventional vehicles. The pivotal role of subsidies in fostering EV adoption in India cannot be overstated. The government initially provided substantial subsidies and incentives to stimulate the burgeoning EV market. However, a recent reduction in subsidies for electric two-wheelers has sparked considerable debate and concern.
Initially, under the National Electric Mobility Mission Plan (NEMMP) 2020 and the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) scheme, the Government introduced substantial financial incentives to stimulate the growth of the EV market. These incentives ranged from direct subsidies on the purchase price of EVs to indirect benefits such as tax exemptions and deductions. For instance, electric two-wheelers previously received subsidies of up to 20,000 INR per kWh under the FAME II scheme. This effectively reduced the upfront cost of EVs for consumers, promoting their broader adoption.
Additionally, manufacturers received incentives for local production of EVs and EV components such as batteries to boost domestic industry and reduce dependency on imports. For startups and small businesses engaged in the production of EVs or associated infrastructure, the government provided financial support and favourable loan conditions. All these measures combined contributed to a burgeoning EV market in India.
However, the government has now decided to reduce subsidies for electric two-wheelers. This decision has led to a surge in the retail prices of electric two-wheelers causing considerable concern among manufacturers, consumers and other industry stakeholders.
The implications of this sudden reduction are significant. Electric two-wheelers, due to their cost-effectiveness and suitability for urban commuting constitute a significant portion of the EV market in India. With the subsidy reduction, these vehicles have become less affordable which could lead to a slowdown in EV adoption. The Society of Manufacturers of Electric Vehicles (SMEV) has vocally expressed these concerns stating that the abrupt subsidy reduction might lead to a major decline in EV adoption in India.
The repercussions of this decision are not limited to the commercial aspects. It also raises several legal and regulatory questions about the government’s role in supporting the EV market. Is the government entitled to abruptly alter the subsidy regime? What are the potential legal remedies for manufacturers and consumers affected by this sudden change? These questions underscore the significance of a consistent and predictable regulatory framework in stimulating the growth of nascent industries such as the EV market in India.