Piyush Goel's dream of electric cars just got a shock from GST
At the tail-end of April this year, India's power minister Piyush Goel made a tall claim. “We are going to introduce electric vehicles in a very big way. The idea is that by 2030, not a single petrol or diesel car should be sold in the country," Goel said, while addressing the CII Annual Session 2017.
Fast forward to 1 July, the date for the implementation of the Goods & Services Tax (GST) in the country. Hybrid cars (combination of electric and petrol) are being equated with luxury cars and SUVs in the country.
Large cars with an engine greater than 1,500 cc, and SUVs that have a length of more than 4 metres and an engine greater than 1,500 cc, will now attract a cess of 15% over and above the tax rate of 28%. This is far higher than the previous rate of 20%-30%, which varied from state to state. Hybrid cars will also attract the same 43% tax going forward, which will deter potential buyers. According to media reports, a dozen hybrid vehicles were expected to launch over the next 3-4 years. Post the excessive taxation, this number will most likely shrink.
In the absence of government support, car makers across India are saying that it will be difficult to popularise green vehicles. Lack of infrastructure (fears of getting stranded on the roads) is the primary concern, but the added burden of GST will only further dampen buyers' resolve.
BMW India President Vikram Pawah told Firstpost that plug-in hybrids are a stepping stone to pure electrical vehicles. Lowering the tax incentives on plug-in hybrids would speed up the adoption of electric vehicles in the country. "If we want to achieve results earlier, then the approach should be plug-in hybrids leading to pure electrical vehicles. That will make the transition much easier but with current policies, it does not allow us to do that," Pawah told Firstpost.
Whilst the tax of electric cars has been kept at 12%, without the required infrastructure, the cars aren't going to sell. To build infrastructure, you need a bridge between petrol cars and all-electric vehicles.
A plug-in hybrid, apart from having a petrol or diesel engine, has a large battery that is then recharged from an outlet by plugging it in. Therefore, one can drive long distances using just electricity. The range is longer than normal hybrid vehicles.
In fact, most countries go from hybrids to plug-in hybrids, and then, finally, all-electric cars, India is trying to remove the middle path altogether. Under GST, electric cars will see a 7.5% reduction in tax.
Tesla Model 3
Tesla had said it wanted to bring its cars to the country before the production of the Model 3. That deadline has long been passed. The real issue behind the delay in Tesla's introduction in the country is the 12% duty on imported vehicles. Tesla is yet to set up a manufacturing plant in the country and neither is there any sign of its Supercharger network.
There may be an influx of electric cars in the country post-GST, but unless they are manufactured in India, and there is a network of chargers, nothing is going to change. Sales have been lagging hugely, and for a dream of selling only electric vehicles by 2030, a lot more needs to be done in the short term.
Give incentives to plug-in hybrids, because with that, one can work build out a network of chargers, which is crucial to the long-term viability of electric cars. Piyush Goel needs to meet with Arun Jaitley and get the tax rates changed as soon as possible.
In fact, Volvo has vowed to stop making gas-powered cars by 2019, saying it will go fully electric or hybrid.. If foreign car companies are moving in this direction, it's incumbent on India to keep up.