Budget 2019: Electric Two Wheeler Perspective
Updated: May 12
For the last few weeks there have been significant noises from various sections of the Modi 2.0 government on the vision and intent to push India towards e-mobility and also making it a hub for electric vehicle manufacturing.
This resulted in fair amount of expectations from Friday’s budget for some fiscal measures to boost electric vehicle adoption. The amount of attention that electric vehicles got from the FM was quite heartening. Following is a quick analysis of the expected impact of the budget announcements on the electric two wheeler industry.
1. Income tax deduction on Interest paid on Electric Vehicle Loans Inputs from Budget:- * Additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles * This amounts to a benefit of around Rs 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle My view - Limited impact on electric two wheeler sales * Assume an electric two wheeler purchased with a loan of Rs. 80,000 @ 10% interest for a three year tenure * Total interest over three years Rs. 12,929 è Income tax benefit from deduction for buyer under 20% IT slab would be Rs. 2,586 over three years and Rs. 0 for someone who does not have a taxable income (yes, they are two wheeler buyers). * Though this may have reasonable impact on electric cars, I am not sure this incentive can significantly push electric two wheeler sales. * In some sense this method of incentivizing is a bit unfair as someone with higher income gets more benefits compared to someone with lower income even when they buy the same two wheeler and of course electric car buyers would benefit much more than electric two wheeler buyers. * I think a better option (even though not a fiscal measure) would be to directly incentivize banks and NBFCs (via RBI) to finance electric vehicles whether to individuals or institutions
2. Custom duty reduction on certain parts / raw material of electric vehicles This is great news for the industry which is dependent on critical imported components and raw material such as Lithium Ion Cells and PCBA. However, some basic research to understand previous rates of some of these components revealed that * Custom duty on Lithium Ion Cells (5%) and PCBA (10%) were imposed in Jan 2019 * In March 2019 the government notified a phased increase in the custom duty of Lithium Ion Cells to double to 10% from April 2021 * Policy flip-flops such as these can be detrimental to the industry and a stable policy regime would be critical to give confidence to companies planning to set up or expand their manufacturing facilities
3. Vision of Mega-manufacturing plants – plan to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as Semi-conductor Fabrication (FAB), Lithium storage batteries, Solar electric charging infrastructure, etc. The recent US-China trade war tremors (even though seems to be called off for now) would be high on the list of concerns for large global manufacturers with operations in China and it seems to be the perfect time to get them to “Make in India”.
4. Proposal for reduction of GST from 12% to 5% * Many are already celebrating but it is important to note that this is a proposal and not approved yet * Further, this proposal was floated even before the recent GST council meeting where it was not approved as it is still under consideration by the relevant committee (GST on EV chargers was reduced from 18% to 12%) * Hope this proposal gets approved by the GST council soon but would be critical to simultaneously reduce the GST on various components (inputs) without which this benefit would not flow to the end users
5. Approval of FAME II * Outlay of Rs. 10,000 crore for 3 years approved for Phase-II of FAME Scheme * I had detailed my concerns with Fame II in my earlier article https://www.linkedin.com/pulse/fame-ii-electric-dream-just-got-bigger-remain-vikas-jain/ * FAME II has a great vision but needs a few tweaks to make it effective. Electric two wheeler sales have come to near standstill since 1st April 2019. Fame I had around 24 electric two wheeler models approved and receiving the subsidy / incentive but even after three months, FAME II seems to have only 4 electric two wheeler models approved. Further 2 of the 4 have a price tag of well over Rs. 1 lakh and hence out of reach of most cost conscious two wheeler consumers. The minister of heavy industries and public enterprises Arvind Ganpat Sawant told Rajya Sabha on 1st July 2019 that only 5 OEMs have been able to register themselves under FAME II yet.
6. Additional Excise Duty and Cess on Petrol & Diesel – Even though this is not a direct attempt to boost e-mobility but to manage fiscal pressures, I think this is the single largest boost (with immediate benefits) to the electric vehicle industry as higher fuel prices would directly impact buyer behavior. To conclude, the vision of the government and the amount of attention that electric vehicles are getting is quite encouraging but at the same time there are additional expectations from the government to iron out the details and ensure policies achieve the intended result. This is just the beginning.