Mass transport awaits a green revolution: How FM can power up EV industry

Clean energy public transport is crucially dependent on the mechanics of financing

It is fairly certain Finance Minister Nirmala Sitharaman will spend some time during her Budget speech on the electric vehicle (EV) revolution beginning to sweep India. She has various options from which to choose. Companies such as Hero MotoCorp-backed Ather Energy, which manufactures electric two-wheelers, hope the government will extend subsidies to buy EVs by expanding the production-linked incentive scheme to the sector or through tax rebates. Bus makers from Tata Motors to Ashok Leyland and JBM Motors want an extension of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicle (FAME) scheme from the original purse of Rs 10,000 crore and 7,000 electric buses — the scheme runs out in March 2022. The Niti Aayog wants, instead, the entire incentive package for EVs to shift to banks, a fiscally safe suggestion. 

Irrespective of whichever call the finance minister takes, it will demonstrate that after decades, EVs have arrived in India as a product of mass aspiration. Her announcement would signal that India’s shift to green energy is not just about adding more renewable energy to the power sector. This was missing so far. In 2017, when Road Transport and Highways Minister Nitin Gadkari pitched aggressively for auto companies to invest in EV, the companies pushed back. They argued, rightly, that there was no demand for EVs. Cut to last September, when Ola Electric sold electric two-wheelers worth Rs 1,100 crore in just two days. This is why Sitharaman could spend some prime time of her Budget speech on this sector. It is a far cry from the despondent tone of the industry just two years ago, when the Federation of Indian Chambers of Commerce & Industry (Ficci) suggested a series of measures to sustain the EV growth road map, mainly to offset an expected fall in demand for cars after the Covid outbreak. 

Gadkari has projected that within this decade, 40 per cent of cars and two-wheelers in India could be EVs. It could be 100 per cent for buses, he has claimed. The latter could be achieved faster, one suspects, if the FAME scheme expands. Last week, the central government’s Convergence Energy Services Ltd (CESL) announced a tender of about Rs 5,500 crore to provide 5,450 EV buses to run in Delhi, Hyderabad, Bengaluru, Kolkata and Surat. State transport undertakings have, in a rare display of pragmatism, been able to pool in their needs for a homogenised supply of buses to rapidly scale up their public transport facilities. “This is the biggest ever scheme in the world, and is based on an innovative, asset-light model,” said Mahua Acharya, managing director and chief executive officer of CESL. Other cities are expected to join subsequently, she said. The money for the tender came from the FAME-II purse. 

India is trying to catch up with leaders like China. Beijing expects to reach 20 per cent EV penetration on its roads by this year. The Indian numbers were less than one per cent last year. 

One of the critical elements of the missing link will obviously be the scope of EV financing. The joint Niti Aayog-RMI India paper released this month has suggested the Reserve Bank of India must declare loans to buy two- or three-wheelers as eligible for classification as priority sector lending. It estimates this will offer supportive bank financing of up to Rs 40,000 crore by 2025, going up to Rs 3.7 trillion by 2030. The sum is vitally needed to get the EV revolution on the road. The nudge has to come from the North Block, though. 

With the right amount of support, the valuations and investment plans for companies in the sector will soar. Last Monday, Ola Electric announced another round of financing to raise its valuation to $5 billion from $3 billion, assessed just five months ago. In calendar 2021, Tata Motors, Mahindra & Mahindra, Ashok Leyland are among a clutch of companies that have committed an investment of Rs 48,000 crore to manufacture EVs (about $6.5 billion).  There are companies trying other tricks. Bengaluru-based Bounce has pivoted its scooter-sharing model to become electric scooter-sharing, while Mahindra has tied up with Hero Electric to transfer that knowhow to the former’s European market product, Peugeot motorcycles. Hero Electric has also partnered with ALT Mobility, a dedicated platform for leasing electric scooters in the logistics market. 

There will be risks from these cross-cutting corporate tie-ups. Also, while the globally constricted supply of raw materials for storing electric charges in batteries, such as lithium, are the larger enduring risks, there are other domestic ones. The Indian government has often made a mess of projects in the past when it has tried to go in for large-scale acquiring of buses for cities. 

The bus manufacturers are reportedly pleased with the prospect of homogenised large-scale production lines, but beyond the metros, smaller towns have space constraints on their roads, which is why buses acquired under the equally ambitious JNNURM (Jawaharlal Nehru National Urban Renewal Mission) project more than a decade ago didn’t get much traction. The big, low-floored buses were impossible to navigate through the crowded roads of smaller cities, which needed the buses the most but had no space to offer. 

The other is the ownership issue. The bills for the buses are being paid for by the Centre through the FAME scheme. There is no clarity on who will bear the responsibility if the bus routes do not yield profits. The Centre cannot keep buying the buses to keep the EV revolution going. Faced with mounting losses, most states have long ago abandoned the role of maintaining a bus fleet. Delhi, for instance, last bought a bus in 2011. They have to enter the business of managing road public transport again.