EV Industry Pins Hopes on GST Cuts, Charging Infra, FAME, PLI for Budget 2023

Though at its nascent stage, the EV sector has witnessed colossal growth. 2022, in particular, was a sterling year for it as the sales registers kept ringing as consumers finally began investing their faith in electric vehicles. The sales figures in FY 22 more than tripled when pitted against FY 2021.

Major announcements at policy level, such as FAME, state subsidies have significantly enabled and been complemented by this growth story. It is telling that several new players are setting foot into the sector.

Even though the majority of the year remained a good one for the EV sector, it ended on a not-so-positive note as news of subsidy withdrawal hit the two wheeler industry in particular. With Budget round the corner, the players from the EV sector wait with bated breath as there are hopes about incentivising the sector yet worries about issues that remain unresolved.

GST to be pegged at 5%

While in 2019, the GST on electric vehicles was consciously reduced by the Government, which has certainly had a favourable impact, but the GST on the primary raw material for EVs- the lithium-ion battery, has been a cause of consternation. The GST on the batteries remain high at 18%., thanks to the various duties levied on the import of the batteries. The sector welcomed the move when this was brought down from 28% to the current 18% in 2018.

Yes, the sales figures look promising for makers, but on the flipside, the duties on raw materials have them equally worried. Rahul Jain, Director – Crayon Motors, voices his concern that will strike a chord with many, “Even when the EV sales have doubled in the last year, the industry still suffers from higher initial ownership costs of EVs, which is a direct result of higher input costs. We hope the upcoming budget will reduce GST on raw materials/components, thereby accelerating India’s EV race. Because battery manufacturing in India relies heavily on imports, some duty relief could help reduce overall costs.”

Adding to the woes is the fact that there are limited options on financing for EVs as uncertainty looms over resale value. That apart, the ROI on EVs continues to be high, as continues Rahul Jain, “EVs have fewer financing options and higher interest rates than ICE vehicles. The EV industry is hoping for a positive outcome from the government’s meeting with the World Bank. Aside from the PLI expansion, other state government programs such as GEDA and central government initiatives such as “Atmanirbhar Bharat” would undoubtedly benefit.”

So far, there are no clear cut rules on GST on EV spare parts and it can vary between 18% to 28%. For a long time now, the EV industry has been hoping for uniformity on GST on EV spare parts at 5%.

Anshul Gupta, Managing Director, Okaya Electric Vehicles, expresses his view, “As the country looks towards Budget 2023, we trust that the electric vehicle sector has the potential to play a major role in driving economic growth and development. We are expecting the policy makers to take steps to make EVs more affordable and accessible to the public, such as by lowering GST rates on EV spare parts and reducing input GST on EV OEMs. We also hope that the government will continue to extend support for the development of the EV sector. We believe that these measures will help to drive the widespread adoption of this clean and sustainable mode of transportation.”

Premium on charging infrastructure

Even though policies such as FAME and PLI have been welcomed with open arms by the industry, there are grey areas that need to be addressed as these continue to exclude certain players from their ambit. This is just the tip of the iceberg. There is limited space for charging infrastructure to be set up and charges levied on charging remain undefined.

Ketan Mehta, Founder & CEO, HOP Electric Mobility shares his hopes from the Budget bases this many challenges, “Streamline the PLI scheme, thus bringing clarity in the provisions and related benefits; FAME II scheme to be defined with more clarity and inclusive to ensure innovation in product development and enhance EV adoption; Level playing field between established players and start-ups in the segment; The applicable GST levied needs to be reformed and rationalised –  anticipating a curtailment in the current GST on lithium-ion battery packs and cells from 18% to 5%.; Further, boost in the charging infrastructure development – PPP model could be looked at more comprehensively for rapid deployment. Promote the universal battery charging and swapping infrastructure for ease of use.”

Opines Amit Gupta, Head- Energy Infrastructure Solutions, Delta Electronics India, “The industry needs more assistance to encourage private enterprises to build charging infrastructure, which will facilitate the widespread adoption of EVs. Infrastructure for charging requires capital-intensive design and installation costs. The sector’s top aim is to keep capital costs as low as feasible. The proper course of action for making it easier to install charging infrastructure is to facilitate grid connectivity, but it is crucial for the sector that the government also subsidizes electrical connections and fixed load fees for EV charging point operators.” He continues, “The government has encouraged the use of charging stations by setting the GST at 5% on the sale of charging stations, but the GST rate is 18% when using the infrastructure. Given that many people utilize these charging stations and do not qualify for an input tax credit, the government must reduce this GST to 0%, just like it does with the sale of energy.”

The Budget that was tabled last year, raised hopes as it introduced a draft policy mandating just the employment of only Advanced Chemistry Cell (ACC) batteries under Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India (FAME-II) scheme to enhance manufacturing. Three bidders were selected last year towards this. Battery Management System (BMS) was also touched upon in Budget 2022 to improve efficiency to encourage adoption.

Two-wheeler & three-wheeler EVs

The two-wheeler segment has vastly benefitted from government-introduced schemes and claims the largest share of EV sector (over 60%), the e-auto sector also hopes to expand its reach with policies that facilitate this mobilisation, “The government has been supportive of the EV industries with the constant policy push in the last few years. As the ambit of EVs expands, we hope that the upcoming Union Budget considers increasing the FAME-II subsidy for the e-auto (L5M) segment to Rs. 15000 per kWh or 40% of the ex-showroom cost, whichever is lower in line with EV two-wheelers. The e-auto segment has undergone rapid electrification transformation and will prove to be a major source of enhancing last- mile connectivity. This will lead to improving affordability and accelerate EV adoption further in the country,” says Hyder Khan, CEO, Godawari Electric Motors.

Says Tushar Choudhary, Founder & CEO, Motovolt Mobility, “Electric two-wheelers and e-bikes are ideal for the last-mile delivery services provided by food delivery platforms, e-commerce companies, courier services, etc. This pace of adoption can be accelerated by offering lower GST to operators who switch their fleets to EVs. At present the GST on such services is calculated at 18% and lowering this amount and offering green mobility incentives would be a welcome step.”

Make Charging With Renewable Energy An Attractive Business Proposition

Amid growing focus on integrating renewable energy with EV charging, Prateek Saxena, Founder and CEO, Hygge Energy stresses on the importance of making this proposition more lucrative for business owners since currently, the payback/ ROI is not so impressive, “The Indian government has made commendable efforts towards the proliferation of EV charging as well as rooftop solar. However, Niti Aayog reported that India needs 3.9 million EV charging stations by 2030, which is much more than what current policies plan for. Moreover, the country fell short of its 2022 rooftop solar target by 81.2%. The reason behind this is simply that EV charging in India, along with rooftop solar, is not attractive to business owners because it is not profitable. To achieve profitability, the government’s EV charging and rooftop solar efforts must be combined.” He recommends that chargers must be integrated with a carbon trading system that aggregates carbon credits for monetization; this will open up a carbon trading market of $10 billion and allow businesses to add another revenue stream. “It is essential that the 2023 budget comprises policies focused on carbon credit-enabled rooftop solar-powered EV charging. Keeping in line with India’s ambitious net-zero goals, this three-pronged system will ensure a thriving EV charging industry in the country,” he sums up.

Aiding domestic manufacturing

India is primarily dependent on other countries, mostly China, for the import of Lithium battery, which powers the engine of electric vehicles. However, these imports add to the manufacturing costs, thanks to various duties levied on them. In the face of this situation, the industry players are vying for an impetus to the domestic manufacturing sector from the Government.