Budget 2019: Govt's EV push casts shadow on traditional automobile sector

The proposed EV revolution has come as a worry for the petroleum sector
With Finance Minister Nirmala Sitharaman lining up sops to make electric vehicles (EVs) affordable for consumers, a battle between EVs and those running on petrol and diesel seems to be taking shape. The government’s renewed focus on EVs has also cast a cloud on the planned $45-billion investment in the gas infrastructure and oil refinery sectors, even as traditional-fuel automobile players are worried too.

 R C Bhargava, chairman, Maruti Suzuki (MSIL), told Business Standard that the government was in the right direction on EVs, but he also flagged challenges. “We will have to move towards EVs. We need cleaner technology and have to conserve oil. Nobody can say no to this. However, there are challenges, including higher pricing of cars and charging infrastructure.”

The Union Budget on Friday proposed to cut goods and service tax (GST) on EVs from the current 12 per cent to 5 per cent by recommending it to the GST Council. In addition, an income-tax deduction of up to Rs 1.5 lakh can be availed on the interest paid on loans taken for EVs. The move is expected to save tax of around Rs 2.5 lakh over a five-year loan period for taxpayers. The Budget also reduced Customs duty on parts exclusively used for EVs like e-drive assembly, on-board charger, e-compressor, and charging gun to zero. 

“This will be positive for EV manufacturers like Tata Motors and M&M,” said an Angel Broking Research report. 

According to a report by the NITI Aayog and the Rocky Mountain Institute (RMI) on opportunities for the automobile sector and the government under the Faster Adoption and Manufacturing of Electric Vehicles II (FAME II) scheme released in April, EVs sold through 2030 could cumulatively save 474 million tonnes of oil equivalent (Mtoe) worth Rs 15 trillion and generate net carbon dioxide savings of 846 million tonnes (mt) over their operational lifetime. 

The incentives for EVs came even as the government increased duties on petrol and diesel by Rs 2 a litre. However, making EVs for personal use more attractive from the point of view of cost may still be a challenge. A senior auto industry official said, “A Rs 5-lakh petrol car will still cost Rs 10 lakh if converted into electric. Then what benefit this move will bring to the middle class that opts for small cars? On the other hand, a small car at Rs 10 lakh may still not be the choice of the rich,” said a senior executive from a domestic auto major. “Moreover, the heavy investments being made by automobile companies and refineries for conversion to BS VI fuel will be rendered useless.”  

The proposed EV revolution has come as a worry for the petroleum sector. “Almost $25-billion investment is lined up in gas infrastructure (LNG terminal, national gas grid, and CGD). India also is planning to increase domestic refining capacity to 450 mmtp by 2035. These investors will have to do a scenario planning to critically appraise if such investment make sense, given the preference of government for an EV-dominated future of mobility,” said Debasish Mishra, leader, energy, resources and industrials, at Deloitte in India. 

The ninth and tenth round of city gas distribution bidding for which the geographical areas are already allotted is expected to see investments of around Rs 1.2 trillion, out of which a major chunk of the business is dependent on compressed natural gas sales. Industry sources say that simultaneous focus on EVs will have a massive impact on the CNG expansion drive. 

According to a Boston Consulting Group data, investment to the tune of $20.38 billion is expected to come up in India’s refinery sector in the coming years. 

“With international players like Saudi Aramco showing interest in the $44-billion West Coast refinery project, the government should have a clarity on what is our energy future,” said an oil industry official.  

The move may also dampen the massive dealership drive of starting 78,493 new fuel retail outlets lined up by oil-marketing companies Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation that may see an investment of around Rs 90,000 crore in the sector.

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