Electric Mobility in India: Analysis of Incentives Offered by State Governments to the EV and EV Component Manufacturers

1.Introduction

The automobile industry globally is at a transformation stage, accelerated by depleting reserves of fossil fuels, rising costs of conventional fuels, evolving EV regulations and rapidly growing environmental concerns. With just half a decade remaining to achieve India’s ambitious goal of transforming 30% of India’s vehicle fleet into electric vehicles, a decisive and well-coordinated effort among all stakeholders will be crucial to gain the required momentum. 

1.1 Central Government Incentives

The Government of India has introduced a host of EV regulations, policies and schemes for transport electrification, marked by the implementation of Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) schemes (I and II) & Production Linked Incentives for EV industry. Complementing this there has been a reduction in the Goods and Services Tax (GST) on electric vehicles (EVs) to 5%, accompanied by an income tax exemption of up to INR 1,50,000 on interest payments for EV loans. In addition to these measures, various EV-related guidelines and notifications have been introduced, addressing EV charging standards, the delicensing of EV charging services, tariff capping for charging infrastructure, model Development Control Regulations (DCR) and building codes for EV charging. As a result, EV regulations in India are also gradually evolving. 

1.2 Initiatives by State Governments

Transportation, being a concurrent subject, empowers states with the authority to wield various policy and implementation tools essential for driving the shift towards electric mobility. Beyond aiding the on-ground execution of central government directives and initiatives, most state governments have taken an additional stride by adopting and implementing independent policies tailored to promote electric mobility.

Commencing with the announcement of the Karnataka Electric Vehicle and Energy Storage Policy in 2017, a total of 26 states have either issued notifications or drafted Electric Vehicle (EV) policies. These state-specific EV policies exhibit a wide range in terms of their scope and duration, with the majority having a validity period of five years from the date of notification. The implementation of these policies is led by different departments across states, with the Department of Industries often serving as a common nodal agency entrusted with formulating and executing EV policies in multiple regions. 

The policy incentives and measures introduced by the state governments can be categorised into three key areas – 

• Consumer demand incentives
• Charging infrastructure incentives 
• Industry incentives

Our energy lawyers in India have authored this article to highlight the industry incentives geared towards electric vehicle manufacturers, EV battery producers and ancillary companies. These incentives are designed to stimulate the production of EVs and components within the EV value chain. They are provided in the form of capital and infrastructure subsidies, as well as support for human resources and research development which includes fiscal support for setting up industries, promoting innovation as well as research and development, and skilling the workforce to improve the industrial outlook.

2.Industry Incentives

The central government has introduced a production-linked incentive (PLI) scheme to bolster the automotive sector and EV manufacturers. However, no specific incentives for the EV industry have been introduced by the central government. 

EV policies of various states provide for specific incentives for EV manufacturers and EV component manufacturers with certain states providing incentives in line for other industries while some states have provided additional incentives by designating EV-related industries as a “thrust sector” or a “priority sector” which usually includes manufacturing and primary industries important for the development of basic needs of the state and country. The section below analyses and highlights features of EV policies of the states. The EV policies covered in this article have been identified based on being the most comprehensive EV policies in India, focusing on supply-side incentives. 

2.1 Capital Subsidies for Industrial Development 

State governments offer capital subsidies structured in tiers to offset high upfront setting-up costs. These subsidies cater to industries of various sizes, ranging from micro, small, and medium enterprises (MSMEs) to ultra-mega projects. The attached table below explains the capital subsidies provided for under EV policies of certain states.

2.2 Tax Exemptions and Land-Related Concessions

In addition to capital subsidies, states have been providing fiscal incentives such as tax exemptions or reimbursements of the State Goods and Services Tax (SGST) and interest subsidies on loans as part of their industrial promotion subsidies. Similarly, different state EV policies are focussing on reducing the land purchase and registration cost by granting subsidies on land costs, fee waivers for agricultural to industrial land conversion, and exemptions on stamp duty and registration charges.

2.3 Infrastructure Concessions and Subsidies

Infrastructure-related subsidies play a key role in lowering operational costs, primarily by offering concessions on electricity charges. Therefore, EV policies of various states are providing supplementary subsidies on Electricity Duty and power tariffs.

3. Recommendations on Industry Incentives 

3.1 Accelerate the deployment of financial incentives: The significant time lag between policy notification and actual implementation in various states poses a notable impediment to the success of initiatives for EV adoption. States must expedite the execution of measures such as road tax exemptions, ensuring swift momentum for EV adoption. Establishing single-window mechanisms for availing incentives and providing clarity on redemption processes will contribute to creating a seamless experience for prospective EV buyers.

3.2 Provision of Plug-and-Play Facilities: States aiming to attract mid-sized manufacturing in the EV sector can enhance their appeal by offering readily available industrial land parcels and shared infrastructure facilities. This strategy minimises setup costs for companies, making the location more attractive for investment.

3.3 Value Chain Specialisations: While state EV policies generally encourage the entire EV industrial ecosystem, some states provide extra incentives for strategic industries like battery manufacturing. A focused approach on specific components of the EV value chain will allow states to become key hubs, fostering industrial growth and employment generation both nationally and globally.

3.4 Labour Force Training: To benefit both incoming young workers and experienced individuals in the auto industry, governments should standardise skill development and certification processes, ensuring industry-wide norms. This not only reduces potential economic shocks to communities but also enhances overall resilience from economic downturns.

3.5 Targets for EV Manufacturing: In addition to incentivising consumers, states can guide automotive manufacturers toward an electric transition. Drawing inspiration from schemes in China and California, states can set targets requiring manufacturers to achieve a specific share of EVs in their annual production or sales.

3.6 Support for Industry-Academia Partnerships: State policies often emphasise incentives for skill development and research but fall short in promoting ties between industry and academia. To bridge this gap, state governments can play a pivotal role by establishing autonomous bodies. These agencies can form associations involving academics, researchers, manufacturers, and industry bodies dedicated to the EV industry. Further, strategic regional development that brings together leading academic and research institutes with industrial facilities can create positive feedback loops, attracting productive companies and a talented workforce, and ultimately forming robust industrial clusters.

Conclusion

To summarise, India’s electric mobility sector is poised for growth with robust incentives from state governments. At the same time, overcoming challenges such as infrastructure gaps and policy implementation delays through streamlined processes and proactive governance will be vital to continue and accelerate this growth, contributing to the country’s ambitious goal of transforming 30% of India’s vehicle fleet into electric vehicles by 2030.