June 15, 2017    4 minute read

Trumping America: India’s Ambition for Electric Automobiles

A Clash of Markets    June 15, 2017    4 minute read

Trumping America: India’s Ambition for Electric Automobiles

In a time when Donald Trump is questioning its very existence, India has made a bold statement of intent in the world’s battle to tackle climate change. In early June, Piyush Goyal, India’s power minister made clear their pledge to sell only electric automobiles by 2030.

This step, criticised in some departments as a red herring in the fight against fossil fuel dependency, is undoubtedly an ambitious step. This is no small change. By 2030, it claims to reduce India’s carbon emissions by 37% and save the country $60bn in energy costs. What’s more, it is a profound change on a vital driver of the Indian economy.

The automotive industry in India accounts for 7% of the country’s GDP, with an expectation that India will become a leader in the two-wheeler and four-wheeler market by 2020. It produced an estimated 18.8 million two-wheel vehicles in 2016 and 3.4 million passenger cars. Compare that to the USA, which the Bureau of Transportation Statistics claim produced 4.16 million passenger cars in 2015 and you can see we are dealing with an industry competing in the highest echelons of the global stage.

The Plan?

How it proposes to make this change is unclear. The NITI Aayog report, which provided the basis for India’s pledge, proposed a variety of potential solutions.

The fact that electric vehicles are worth the investment is the clear takeaway from the report. The first of these are feebates, incentives in the form of rebates for “efficient new vehicles paid for by fees on inefficient ones.” In addition, tax breaks for companies producing electric vehicles as well financial incentives for consumers wishing to play a part are suggested.

Alongside this, investments in infrastructure in the form of electric vehicle supply equipment deployment and vehicle-grid integration, as well as data-sharing facilities and swappable batteries for all two and three wheelers, all form part of the ambitious plan.

Barriers to international investment

What seems clear, however, is that the move will not be at the expense of the domestic automotive industry. India currently has extremely high tariffs on completed electric vehicles imported into the country, imposing a 60% duty on all vehicles of a value of less than $40,000 and 100% on vehicles over that mark. And while Elon Musk is currently seeking a significant reduction, initial indications show little signs of India giving way. The message is clear. If you want to sell in India, you’re going to have to assemble in India (the duty is only 10% for electric vehicles assembled domestically).

Smoke on the horizon

Such a move will undoubtedly not be without its doubters, and while environmentalists around the world will applaud India’s pledge, there are murmurs of discontent. Maruti Suzuki and Toyota have both recently put on record a reassessment of their plans should the Indian government not renege on their decision to put higher taxes on hybrid vehicles as opposed to fully electric vehicles, due to come into force on the 1st of July. Indeed, currently only one Indian company manufactures electric vehicles. The move is a surprise to say the least.

Yet it is submitted that if any country can make such a pledge, then it is India. With a domestic market of over 1.3 billion people it is better positioned to survive should foreign investment dwindle. Any visitor to India will pay testament to the fact that Indian vehicles are often found nowhere else in the world (Tata Motors’ exports accounted for only 9% of its revenue in 2015). And it is further submitted that the foreign investment which has contributed an estimated $15bn between 2000 and 2016 (according to India Brand Equity Foundation) is less likely to disappear but instead adapt to its changing market. India is not a market one can afford to ignore.

Big question marks remain over an India free from gas guzzling automobiles or indeed whether it can be achieved. It is undoubtedly a bold gambit and has for now caught the industry off guard, but if nothing else India must be applauded for its refreshing ambition. Time will tell what form that ambition takes.

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