August 10, 2022

Center plans $5 billion fund for electric vehicle production

India plans to set up a $5 billion fund to support the adoption of electric vehicles (EVs), two people with knowledge of the development have said.

The plan, in work proposed by federal think tank NITI Aayog, will focus on reducing the high upfront capital expenditure for electric vehicle ownership, the people said, requesting anonymity.

The US Agency for International Development (USAID) will provide technical assistance in setting up the fund, they added.

“The plan is at a preliminary stage,” said one of the two people quoted above, on condition of anonymity.

Indian policymakers plan to meet the ambitious goal of switching to electric vehicles, with Prime Minister Narendra Modi pledging to reduce greenhouse gas emissions and achieve net zero carbon emissions by 2070.

However, the limited number of charging stations and the high cost of electric vehicles have so far deterred buyers, limiting the adoption of electric vehicles.

Yet 1.33 million of these vehicles have been registered in India, mostly two-wheelers and three-wheelers.

A U.S. Embassy spokesperson, in an email response, said, “USAID, as part of its Regional Energy Partnership in South Asia, has collaborated with NITI Aayog to set up an electric vehicle financial services center to advance electric mobility in India.”

USAID, the embassy said, would provide technical assistance to create catalysts for EV financing, engage with industry and financial institutions to develop a conceptual framework for EV financing, and create a methodology for development of carbon assets to leverage carbon credits and monetization.

India plans to introduce amendments to the Energy Conservation Act (ECA) during the monsoon session of parliament to institute a regulatory framework for carbon trading. The government has also amended the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (Fame) program to promote electric mobility. Under this program, the government will spend 10,000 crore in Fame-2 to subsidize 500,000 electric three-wheelers, one million electric two-wheelers, 55,000 electric passenger vehicles and 7,090 electric buses.

“Engagement with USAID to facilitate financing of electric vehicles is at a very preliminary conceptual stage. Further details can only be shared once deliverables are confirmed,” said Sudhendu J. Sinha, Advisor ( infrastructure connectivity – transport and electric mobility) at NITI Aayog, in an email response.

The electric vehicle financing space in India has seen a boom as major investors consolidate their plans. For example, Australian group Macquarie is in talks with commercial investors to raise $205 million to set up an electric vehicle leasing and financing company in India, Mint reported earlier. Macquarie, which has secured commitments from South Korea’s Green Climate Fund, will start with the electric mobility funding platform for electric buses, shared fleets and electric vehicle charging infrastructure.

Additionally, the Ministry of Heavy Industries sanctioned 2,877 electric vehicle charging stations in 68 cities in 25 states and union territories. Other government initiatives to drive the adoption of electric mobility include the 18,100 Crore Production Linked Incentive (PLI) Scheme for Advanced Chemical Cell Manufacturing and Electric Vehicle Coverage under the PLI scheme of 25,938 crores for auto and automotive components. In addition, the goods and services tax on electric vehicles and chargers has been reduced to 5%. The Department of Highways announced green license plates and exemptions from licensing requirements and asked states to waive road tax on electric vehicles.

The price of electric vehicles is also expected to reach price parity with fossil-fuel vehicles soon. The push to lower electric vehicle prices has started to show results, with state-owned Convergence Energy Services Ltd. 5,000 crore tender for 5,540 electric buses in five cities, which led to price finding comparable to the cost of running diesel buses.

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