Why Kejriwal Govt Is Stopping Subsidy For Electric Cars

The Government of National Capital Territory of Delhi has decided to not extend the subsidy for electric cars announced last year in its much publicised EV policy which was intended to cover 1,000 e-cars bought in Delhi on ‘first come, first serve basis‘. Now that the target is met in such a short time, it has decided to not continue with it.

The e-cars were eligible for subsidy of Rs 10,000 per kWh of battery capacity (with total amount being capped at Rs 1.5 lakh per vehicle). These vehicles also didn’t have to pay road tax and registration fees. For other EVs, including two-wheelers, the subsidy is Rs 5,000 per kWh of battery capacity and a maximum benefit of Rs 30,000 per vehicle which will continue for now.

As per official figures, between July and September, EVs accounted for 7 per cent of the total number of vehicles registered - up from barely 1 per cent before, while CNG vehicles accounted for 6 per cent. Over 1.5 lakh vehicles were registered in this period, including 7,869 electric vehicles, 6,857 CNG vehicles, 7,257 vehicles driven on both CNG and petrol, and 93,091 vehicles driven on petrol or diesel.

EV sales have gone up fast in recent months due to rising oil prices and are expected to rise even further as petrol crossed Rs 110 and diesel rearing to go past 100 any day now. The fact that 1,415 e-cars got sold in last three months is telling.

Then why is Kejriwal government not extending the subsidy?

Officially, Delhi Transport Minister Kailash Gehlot says that the electric cars segment has received the required push in Delhi. “Our focus now is to tap the two-wheeler, freight and public transport segments of electric vehicles (EVs) as they constitute a major chunk of Delhi’s over 10 million registered vehicles. They also ply on the road more as compared to private cars, thereby causing more pollution,” he says.

“Actually, a subsidy is not required for e-cars as such because those who can afford to pay around Rs 15 lakh for a vehicle do not care if the cost is Rs 1-2 lakh more, sans the subsidy. Our aim is to provide the subsidy to those who need it the most, and they include auto drivers, two-wheeler owners, delivery partners and so on," he reasons.

Of course, it’s not true that electric cars have received the required push in Delhi and now the government can relax on that front. Given the level of private ownership in the national capital, the number of private vehicles that need to go electric to bring substantial change is huge. However, the Minister is hinting at something else. It’s the budget, stupid!

Most of the e-cars available in the market have battery capacity of over 15 kWh hence they are eligible for maximum subsidy of Rs 1.5 lakh per vehicle. The revenue foregone on account of road taxes and registration charges (which would be almost one lakh for such costly cars) is extra.

For the same amount, the government can finance five two-wheeler EVs (theoretically five, but most of the two-wheeler EVs are less than 3kWh battery capacity and hence are eligible for only Rs 15,000 subsidy per vehicle. So, 10 two wheeler EVs can be financed at the cost of subsidy of one e-car).

Focusing on two wheelers thus makes more sense. As per a survey in 2014 by Nielsen, two-wheelers consumed 61.42 per cent of the country’s total petrol sales. The share wouldn’t have changed much in the last seven years.

As per Niti Aayog‘s report from 2018, two-wheelers alone consume around Rs 3,400 crore litres of petrol every year. At Rs 100 per litre, this would amount to Rs 3.4 lakh crore. Imagine the savings to both consumers and the government (on account of oil import bill) if electric were to take off.

The governments have limited budget. To get the best bang for the buck, they need to prioritise the subsidies accordingly. With the entry of OLA electric, EV revolution at least in the two wheeler segment is truly underway but we shouldn’t lose sight of the fact that it’s chiefly driven by subsidies by centre and states.

These can rise to upwards of Rs 30,000 crore by 2025 if the EV share is half of the total annual sales. That’s the amount for only two-wheelers. There is no choice for the governments but to prioritise.

Stopping subsidy for all e-cars as the Delhi government has done, is not helpful at least at such an early stage. It should rather focus on subsidising commercial EVs.

Given that the tech is not yet here for heavy vehicles (like trucks), the focus can be on light commercial vehicles, including passenger vehicles which are owned privately but are in taxi service (the yellow number plate wallas).

Five years ago, cars that went into taxi service were around 9 per cent of total passenger vehicle sales and were expected to reach 15-17 per cent by now. This section of vehicles would be the right one to target for the Delhi or other state governments who feel they can’t afford to subsidise E-cars on mass scale.

The incentives can include full exemption from road tax, registration charges, toll tax or any recurring charges that are otherwise paid by commercial vehicles. Dedicated charging points for these vehicles can be planned.

The EV revolution in car segment seems far as of now but it’s only because there is no decent sub-10 lakh car available in the market. Tata’s revamped Tigor EV effectively costs less than Rs 10 lakh with subsidies and has a decent range of over 200 kms. It’s pertinent to note that this is almost same as the average daily run of taxis in Indian cities.

In any case, the fast charger network will take care of the problem if the daily run is more or if range is less. Other companies like Mahindra, Maruti and Renault are also going to launch their budget electric cars soon. In fact, even Ola CEO Bhavish Agarwal has announced that EV cars are going to be on the company’s list after their scooter project.

Hence, what Kejriwal government needs is right targeting, not wholesale withdrawal of subsidies for e-cars.

Also Read: Top Electric Two-Wheelers India Sales Outlook So Far In 2021