A WhatsApp message currently being circulated explains in great detail why global investors prefer to invest in China rather than India. The message does cut close to the bone despite its questionable provenance or authenticity. Far from social media, there are many real-life case studies which illustrate, in much sharper relief, India’s famously unpredictable policy environment.
A fitting example is perhaps the current government’s policy trajectory for electric mobility which has left the Indian automotive industry more confused and uncertain than earlier. It is instructive to map its policy arc to understand the mechanics of Indian policymaking.
Formal efforts to introduce electric mobility in India began in 2013 with the National Electric Mobility Mission Plan (NEMMP), which envisaged a manufacturing focus that could put 6-7 million electric/hybrid vehicles on the road by 2020. Under the same framework, the new government in 2015 introduced Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles scheme, which promised to provide subsidies for manufacture of electric vehicles (EVs) and hybrids. While these policy initiatives did catalyse some positive responses—sales of EVs/hybrids went from nil in 2012 to 1.3% of all passenger vehicles by 2016—it was found to be too little and too slow.
Three rapid, external developments subsequently influenced policy developments in the sector. The first relates to anxieties over rising oil imports crowding out space in the current account. Oil imports accounted for $88.72 billion, or 22.6% of all imports, during 2016-17; the transport sector is said to account for roughly 55-60% of the total bill, or $49-53 billion. As vehicle sales pick up, this will only rise.
The second reason for worry was the worsening state of urban pollution in India, specifically the noxious pall that envelopes Delhi every winter. This has invited international censure, discrediting Delhi’s aspirations to be counted among the leading global capitals. The unkindest cut was World Health Organization listing 10 Indian cities among the world’s 20 most polluted cities.
The final impetus came from the global politics over climate change and India’s rising greenhouse gas emissions. As part of its Intended Nationally Determined Contribution (INDC), submitted to the United Nations Framework Convention on Climate Change, India plans to reduce its carbon footprint by 33-35% from its 2005 levels by 2030. Simultaneously, India pledged to meet United Nation’s Sustainable Development Goals, of which Goal 11 deals with sustainable transport.
There’s another indirect catalyst: the noticeable, year-on-year pick-up in EV sales globally (for example, 2017 sales jumped 51% over 2016 to 1.3 million vehicles) and the rapid roll-out of an EV-friendly ecosystem by a host of rich nations, including Norway, the Netherlands, Germany and Japan, among others. A shift to EVs also meant a fillip for Make In India. So, Indian policymakers responded by doing what they do best: be seen as doing something. In April 2017, at the annual session of Confederation of Indian Industry, former Union power minister Piyush Goyal (now Union railways minister) announced that not a single petrol or diesel vehicle would be sold in 2030. Thereafter, in September 2017, while addressing the annual convention of Society of Indian Automobile Manufacturers, Union roads and highways minister Nitin Gadkari thundered at automakers: shift to electric vehicles or else.
Auto manufacturers were confused. They wanted a policy roadmap first which answered some of the basic questions: would India go to EVs via the hybrids route or leapfrog straight to EVs; what would be policy regarding the charging infrastructure (such as, fast charging at work spaces or malls and slow charging at homes); what about the battery market and battery swap mechanism; what kind of fiscal and non-financial incentives would be on offer for battery research and development and EV manufacture; shouldn’t government first take the lead with public transport, and so on.
In the midst of all the hectoring and haranguing, policymakers did promise that a policy document was being prepared. Unfortunately, come February 2018, this promise was summarily discarded with Gadkari stating that a policy was not required. This has left carmakers even more confused: how do they pace their EV development plans now? And does the 2030 threat still hold, even though there is no government notification?
But some larger policy issues need to be considered here. For one, the government should not be dictating what technology industry should adopt. It should largely be left to market forces. The government, as a regulator, can perhaps lay down strict emission standards, leaving industry free to select how they achieve that—through electric powertrains or bio-fuels or other alternatives.
Second, government should be acting as facilitator by providing the necessary infrastructure (charging stations), fiscal benefits (tax breaks for manufacturers and buyers of EVs and batteries), non-financial incentives (freedom from tolls, parking fees, lower power tariffs and insurance premium). The government should also be investing to convert public transport into non-polluting fleets first to generate demand.
Finally, disruption in the automotive industry is already palpable. This is actually the time for government to take the lead, consult with industry and frame a suitable policy architecture.
Rajrishi Singhal is a consultant and former editor of a leading business newspaper. His Twitter handle is @rajrishisinghal.
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