Reva banks on duty sops from states

Reva, India's only electric car, is caught in a chicken-and-egg situation. Unless it is made cheaper there will not be enough demand for it; unless demand picks up the price will not go down; and unless that happens ordinary consumers will keep comparing it to say the Maruti 800 and not find it cost effective.

A two-seater Reva with negligible luggage space costs Rs 2.37 lakh ex-showroom (in Bangalore). Why should an ordinary car aspirant buy it and not a Maruti 800 at ex-showroom Rs 2.2 lakh ?

He will buy the car if it is a lot cheaper, made possible by tax exemptions and even state subsidies as is happening in various advanced countries. And the state will be doing this because it is its declared policy to encourage the use of low pollution vehicles, particular inner cities.

The government of India has laid out the case for such preference through the Mashelkar Committee's Auto Fuel Policy but the ground reality is quite far from the idea.

According to Chetan Kumar Maini, managing director, Reva Electric Car Company (Pvt) Ltd, "Though we have received a tremendous encouragement from a few states with regard to duty waiver, several others are yet to follow suit. For a car which goes a step further than just meeting the pollution norms, it is very difficult to go aggressive on pricing. It can be achieved with increase in volumes. But for volumes to come, it is important that specific waivers are granted as per the directives of the Centre."

All electric vehicles have been exempt from sales tax in Karnataka, Andhra Pradesh, Delhi, Goa, Rajasthan and Pondicherry. But Tamil Nadu and many other states are yet to follow suite. This results in a additional duty of 12-13 per cent. In Tamil Nadu, for instance, Reva is costlier by Rs 32,000.

These states have also exempted electric vehicles from paying road tax, while the other states have not. On the customs front, the recent Budget had specified that CNG kits, catalytic convertors and any such equipment that reduces pollution would be charged a 5 per cent duty. But certain parts which are essential for a zero pollution car like Reva, still attract a duty of 35 per cent.

Some imports are vital for Reva like tyres which make it more energy efficient. If domestic tyres, made with the existing technology, are used Reva will run less than the 80 km that it does per charging of its batteries.

Even if the customer does not mind the fuel cost per kilometre going up a bit from the present 40 paise (comparable cost for Maruti 800 is way ahead at Rs 2.50 per kilometre), having to take the Reva for recharging after a shorter drive affects its entire viability.

Maini also highlighted the acceptance of electric cars in many countries. "In Norway, EVs are exempt from import duties and further there is no acquisition tax for EVs. In Britain, Power Shift, an organisation funded by the government provides subsidies up to GBP 1.5 lakh for buyers of EVs. EVs are exempt from paying parking fees and daily entry tax in London. They are exempt from road taxes and users are provided for with a 100 per cent depreciation in the first year of purchase. Austria goes a step ahead where the government sponsors 15-20 per cent of the investment cost of EVs. The US government has introduced tax credits up to US $ 4250- $ 42500 for EV purchasers, subject to size of car," he explained.

"In India," he added, "the central government has provided enough incentives like allowing for 80 per cent depreciation to be claimed by corporates in the first year of purchase, as against 100 per cent in many other countries. The central government has also provided a subsidy of Rs 75,000 to all PSUs, educational institutions and hospitals on purchases of the eco-models version of Reva." But then some states are yet to follow suit.

Even without a uniformly helpful regulatory regime across the country Reva is well on track to achieve a break-even in fiscal year 2004-05. The company has invested $20 million on this venture with a debt-equity ratio of 1.3:1.

From selling 50 cars per month, ongoing demand will take this to 200 units per month by March 2004, with exports constituting 30 per cent. But if the state and central governments got their act together things would move much faster for the company.