Last week, the government added heft to its policy to promote electric vehicles (EVs) by slashing the goods and services tax (GST) on them from 12 to 5 per cent and on chargers from 18 to 5 per cent with effect from August 1. It has also exempted from the GST the hiring of electric buses by local authorities with a carrying capacity of more than 12 people. These come soon after a tax break in the Budget providing an additional income tax deduction of Rs 1.5 lakh on interest paid on loans to buy EVs. Both seek to augment the government’s March announcement of the second edition of its FAME (Faster Adoption of Manufacturing of Hybrid and Electric vehicles) scheme, committing Rs 10,000 crore till 2022 to boost EVs, principally in public transport, of which Rs 1,000 crore was earmarked for infrastructure. EV manufacturers have welcomed these latest concessions, which seek to incentivise private adoption of EVs as well, though the lower GST only narrows the price differential between EVs and petrol and diesel cars, which attract a 28 per cent GST plus cess.
In sharply reducing the GST on chargers, the government has responded to the criticism that its FAME policy did not plan for a robust supporting eco-system in the form of charging stations. But the doubts on this head linger for several reasons. The first is the visibly uneven experience in transitioning public transport to compressed natural gas (CNG) and in encouraging private car owners to opt for it. Few regular users of public transport in the national capital will forget the chaos caused by the paucity of CNG stations in the initial days after the transition was forced by a Supreme Court order. The fact is that 17 years after the last diesel bus went off the road, Delhi — and, indeed, most major cities — still lack a sufficient number of filling stations. The long lines outside CNG pumps even today attest to this. The numbers also tell the story. There are about 3 million CNG vehicles of various descriptions plying in India. Servicing them are just 1,424 stations across the country, that too most of them in Delhi and Mumbai. Last year, Dharmendra Pradhan, minister of petroleum and natural gas, sought to remedy this by announcing that another 10,000 stations would be set up over the decade on the back of the expansion of city gas networks. But the status of this plan is unclear in Narendra Modi’s second term and in the light of the explicit agenda of FAME 2. Manufacturers have also pointed to charging costs, which are linked to electricity rates. Companies setting up charging networks point out that EV owners will soon have to start paying an 18 per cent GST on electricity at these points, which significantly raises the cost of running an EV.
This regular cycle of enabling concessions points to the fundamental weakness in the government’s EV policy, in mandating a technology to achieve an air pollution target, but how far it will succeed when EVs remain heavily dependent on imports is an open question. Constant revision and different rates also go against the basic idea of simplifying the GST structure.