Even as EV adoption slows in advanced economies, Indian policymakers are unwilling to ease the pace of transition, fuelled by the need for greater energy security, more jobs and less pollution.
17 Sep 2024 | 3324 Views | By Kiran Murali, Amit Vijay M
At a time when several advanced economies are reassessing their energy transition targets, policymakers in India have loudly reaffirmed their commitment to the country's fuel diversification roadmap.
With an emphasis on local manufacturing in emerging energy technologies, they believe that this strategy will help the country attain energy security, ...
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At a time when several advanced economies are reassessing their energy transition targets, policymakers in India have loudly reaffirmed their commitment to the country's fuel diversification roadmap.
With an emphasis on local manufacturing in emerging energy technologies, they believe that this strategy will help the country attain energy security, generate jobs, and reduce pollution in major cities.
The government's resolve was on display at the annual conferences organised by auto industry associations, such as the Society of Indian Automobile Manufacturers (SIAM), Automotive Component Manufacturers Association (ACMA), and Federation of Automobile Dealers Association (FADA), in September in New Delhi.
"The road ahead demands that our progress is rapid while also being sustainable. Working towards greener and cleaner mobility is a vital step in this direction. Through innovation and enterprise, I am sure that the automotive industry will drive even higher economic growth," Prime Minister Narendra Modi said in his message to the automotive industry
Besides the prime minister, others who called on the industry to stick to the green transition targets included Nitin Gadkari, Union Minister for Road Transport and Highways, HD Kumaraswamy, Union Minister of Heavy Industries, and Piyush Goyal, Union Minister of Commerce and Industry, as well as various secretaries at these ministries and departments.
This is despite the fact that the electric vehicle market is going through a significant slowdown globally due to falling incentives, rising product prices, range anxiety and macroeconomic factors such as high inflation and fears of a global recession. The Indian government, however, is pushing on at full speed, eager to phase out fossil fuels from the transport sector.
It has again called upon the industry to adopt alternative fuels such as hydrogen, compressed natural gas, liquefied natural gas, and biofuels, and of course, electric powertrains. This is despite the fact that has a more relaxed net zero target of 2070, compared to 2045- 2050 for developed countries.
"This is the time for you to change, as the market is changing. The choice of people is changing. For me, it is my duty to implement this policy in the interest of the nation and society, and from the point of view of the economy and pollution," Gadkari said at the recent SIAM conference in Delhi. He urged manufacturers to keep in sync with changing regulatory and consumer preferences, and pointed to the declining raw material costs, especially those of batteries.
"Some who [OEMs] have good sales, a good market share, they don't want to change. My best wishes to them. But they will face a problem," he noted. As early as the SIAM conference of September 2017, Gadkari had warned the industry they should shift to alternative fuels or risk being "bulldozed" by the government.
So, what explains the government’s determination to push through with the transformation agenda?
Energy Security, Jobs, and Health
For the government, the biggest motivation behind shifting to alternate fuels is India's crippling oil bill. The world's fifth largest economy is also its third-largest importer of crude oil, as it depends on foreign countries such as Saudi Arabia, Iran, Iraq, and Russia to meet more than 85% of its rapidly rising petroleum needs. In the fiscal year 2023-2024, the country imported around 232 million tonnes of crude oil, which is refined into fuels like petrol and diesel. Petroleum imports account for a quarter of India's gross goods imports in value terms.
Unlike in many developed markets, oil demand in India remains strong, driven particularly by the transportation sector's reliance on gasoline and diesel. A recent report from the International Energy Agency projected that India is expected to be the largest contributor to global oil demand in the second half of this decade, defying global trends in the market for transport fuels with sharp growth.
"In India, transport fuels will defy the global trend and increase significantly. Indian demand is expected to rise by 1.3 mb/d (million barrels per day), with growth almost equal to that of its northern neighbour," the agency said. The rising oil bill makes India vulnerable in two areas — foreign policy, where it has to be careful not to displease oil-exporting countries, and the economy, where it is highly prone to inflation and economic upheavals every time global disruptions such as wars lead to spikes in oil prices.
Moreover, rising oil prices also affect the country's foreign exchange position. Much of the foreign exchange earned by industries such as IT and pharma are now being diverted to buy oil. Besides, rising oil prices also push up prices of essential items such as food in the domestic economy and often lead to accelerated depreciation in the value of the rupee.
Hence, energy independence has strategic importance for India. "We should transform into a net energy exporter from a net energy importer. For this, we need your support. It is difficult but not impossible," Gadkari exhorted at this year's SIAM conference.
Another key reason for pushing alternative technologies is for the boost that such industries can bring to India's economy, both in terms of creating economic opportunities and generating new manufacturing jobs. Nearly two-thirds of Indians live off agriculture, but their total share in the nation's economy is only 12%. This keeps most Indians in a low-income trap – a situation the government is eager to fix. "Last year, the rate of corn was Rs 1,200 per quintal. The commercial price of corn was less than the MSP. And today because of ethanol from corn in Bihar and UP, corn rate is Rs 2,800 per quintal. So the farmer is getting double the price, and we are reducing our imports," Gadkari pointed out.
Besides strategic imperatives and jobs, green energy is also seen as a solution for the unhealthy conditions that pervade large Indian cities. It is estimated that 40% of the country's air pollution is caused by the transport sector. Currently, the government's strategy is focused on actively promoting electrification in smaller vehicles, such as twowheelers and three-wheelers, and buses, while, at the same time, nudging other categories such as trucks to explore more suitable alternatives like hydrogen, biofuels and LNG.
The Transition Strategy - EVs
On the EV side, the government is offering three types of support: Investment promotion schemes such as production-linked incentive schemes for manufacturing battery cells and green hydrogen, consumer subsidies aimed at lowering the upfront cost for price-sensitive vehicles such as two-wheelers and three-wheelers, and financial support for public amenities such as charging stations and EV buses.
Key among the manufacturing promotion schemes is the PLI or production-linked incentive scheme. Launched in 2021, the PLI Scheme for Advanced Chemistry Cells offers financial incentives to companies that set up large-scale ACC battery manufacturing units in India. The scheme aims to enhance domestic manufacturing capabilities and reduce dependence on imported batteries, which are crucial for EVs.
Several companies and groups, including Reliance Industries and Tata Group, are constructing battery manufacturing units under the scheme. Another PLI Scheme for Automobile and Auto Components was introduced later, under which EV models from companies such as Bajaj Auto, Ola Electric, and TVS Motor have been selected for financial support from the government.
On the demand side, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) Scheme has proven to be pivotal in promoting the adoption of EVs in two-wheeler and three-wheeler segments. The scheme was modified as FAME II in 2019, and as PM E-Drive this year.
It provides direct subsidies to buyers of electric vehicles and supports the development of charging infrastructure. The scheme aims to make EVs more affordable and attractive to consumers by reducing their upfront costs. It also promotes public transport electrification, with subsidies for electric buses and support for setting up charging stations.
Beyond EV - Hydrogen, Biofuels and Gas
Among the non-electric options, the most promising technology seems to be the one involving the use of hydrogen as a fuel. The government launched the National Hydrogen Mission in 2023 to make India a global hub for hydrogen production and export. The mission focuses on producing green hydrogen, which is derived from renewable energy sources, such as wind and solar power.
India aims to become a global hub for hydrogen production, which could serve sectors like transportation and industries. Recently, the Centre also issued guidelines to undertake pilot projects for using green hydrogen in the transport sector with a budgetary outlay of Rs 496 crore till the financial year 2025-26. This aims to support the development of technologies to use green hydrogen as a fuel in buses, trucks, and four-wheelers, based on fuel cell-based propulsion technology and internal combustion engine-based propulsion technology
The mission targets a green hydrogen production capacity of at least 5 million metric tonnes per annum by 2030 and 60-100 GW electrolyser installations, with a budgetary outlay of Rs 19,744 crore till 2029-30. To support this, policies like waiving inter-state transmission charges for green hydrogen projects and mandating the use of green hydrogen in certain industries have been implemented.
Minister of Petroleum and Natural Gas of India Hardeep Singh Puri, called hydrogen the "fuel of the future" at a recent conference. "The global demand for hydrogen is expected to reach 200 million tonnes by 2030. India is blessed with abundant natural resources that favor the production of green hydrogen not only for the country but also for the entire world. India has a natural advantage in producing Green Hydrogen due to the low cost and abundance of solar energy and investments in our power grid," Puri said.
In the biofuels sector, the National Policy on Biofuels 2018 had set a target of 20% ethanol blending in petrol by 2030, which was later advanced to 2025-26. The government has introduced several initiatives to boost ethanol production, including subsidies for setting up distilleries and allowing multiple feedstocks for ethanol production. The government is pushing the 15% blending of methanol with diesel, targeting commercial vehicles.
The Sustainable Alternative Towards Affordable Transportation (SATAT) scheme promotes compressed biogas production and its use in transport. Biofuels also contribute to reducing waste, as they are produced from biomass and agricultural residues.
The third non-EV alternate energy source is natural gas. CNG has alreadybeen widely adopted as a cleaner fuel alternative for vehicles in India, especially in cities like Delhi and Mumbai, where pollution levels are high, while government is considering an agressive push of LNG as well. CNG has now become a major fuel option in the passenger vehicle segment with most of the major car makers offering CNG models.
Recently, Bajaj Auto introduced the world's first two-wheeler fuelled by CNG. The government has been expanding the CNG infrastructure by increasing the number of fueling stations across the country. It has set a target of 15% natural gas share in the country's energy mix by the end of the decade. There is a mandated blending of compressed biogas in the CNG meant for transport sector in a phased manner from the financial year 2025-26, with a target of 5% blending from 2028-29.
Localisation and Manufacturing
In addition to meeting national security goals and reducing pollution, one of the key thrust areas of the government's alternative fuel strategy is to promote manufacturing opportunities through increased localisation in the automotive industry, which currently contributes 7% to the country's GDP. Unlike earlier, domestic value addition has been kept at the centre with a view to generate jobs by the millions.
The call for greater local manufacturing has found resonance in the industry, including from foreign automakers. Speaking at this year's SIAM conference, Hisashi Takeuchi, MD and CEO of India's largest carmaker Maruti Suzuki, said there was no reason for a country like India to remain dependent on imports for making automobiles. "A country of the size of India needs selfreliance in the entire value chain," he said. "We also need this because only the manufacturing sector can create large-scale jobs for our youth and elevate India from today to a developed country."
Currently, the average localisation rate in India's vehicle industry is about 70%. As the industry continues to pivot towards EVs, balancing local and global market demands will be crucial for defining the next chapter of India's automotive sector. In a bid to push localisation, various schemes such as production-linked incentives and PM E-DRIVE have provisions that require a predetermined share of the value of the end-product to be made in India.
Commerce Minister Piyush Goyal noted that India exported auto components worth USD 21.2 billion last fiscal year. "I hold to my target... Your skills, talents, and hard work will certainly help take this industry's export to USD 100 billion by 2030, making it one of the largest job generators in the country," he said at the ACMA conference.
While the government’s relentless pushing and nudging has got most manufacturers to take their first step towards a non-fossil fuel future, true success will depend on how quickly they can make these technologies accessible to the common man.
This feature was first published in Autocar Professional's September 15, 2024 issue.