ELECTRIC MOBILITY PROMOTION SCHEME (EMPS), 2024

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Context: The Electric Mobility Promotion Scheme (EMPS), launched on April 1, 2024, signifies a strategic shift in India's approach to promoting electric vehicles (EVs) and advancing sustainable transportation. It succeeds the FAME II initiative and emphasises the country's commitment to fostering a strong EV ecosystem.

Details

• India is accelerating its journey towards a cleaner transportation future with the launch of the Electric Mobility Promotion Scheme (EMPS) 2024. This program succeeds the highly successful FAME II initiative, which played a pivotal role in stimulating demand for electric vehicles (EVs) in India.
• EMPS 2024 marks a significant shift in the government's approach to EV promotion, moving away from heavy subsidies and aiming to create a more sustainable and market-driven EV ecosystem in the long run.

Focus on Two-Wheeler and Three-Wheeler Domination

EMPS 2024 prioritises electric two-wheelers and three-wheelers, the segments that have spearheaded India's EV revolution. Their popularity can be attributed to a confluence of factors:

• Affordability: Compared to electric cars, two-wheelers and three-wheelers are generally cheaper to purchase, making them accessible to a wider range of consumers, particularly budget-conscious individuals and families.
• Lower Running Costs: Electric vehicles are significantly cheaper to run compared to their gasoline counterparts. Electricity prices are typically lower than gasoline prices, and EVs require less maintenance due to their simpler electric motors.
• Convenience: These vehicles are ideal for urban environments due to their smaller size and mobility. They require less space for parking compared to cars, making them well-suited for congested cities and towns. Additionally, many electric two-wheelers and three-wheelers can be charged at home using a regular electrical outlet, eliminating the need for frequent trips to gas stations.

 

Reduced Financial Support

• A defining characteristic of EMPS 2024 is the substantial reduction in financial support compared to FAME II. While FAME II offered substantial subsidies per vehicle, EMPS provided a lower incentive amount.
• This shift indicates a long-term vision of transitioning towards a market-driven EV industry, where government support gradually diminishes as the technology matures and becomes more cost-competitive.
• The rationale behind this approach is that as EV technology advances, production costs are expected to decline, making electric vehicles more affordable without the need for significant subsidies. Additionally, by reducing reliance on subsidies, the government can free up resources for other critical areas, such as expanding charging infrastructure and developing indigenous EV manufacturing capabilities.

Financial support differences

• EMPS: Offers ₹5,000 per kWh of battery capacity, capped at 15% of the ex-factory cost or a segment-specific maximum (e.g., ₹10,000 for two-wheelers).
• FAME II: Provided ₹10,000 per kWh of battery capacity, capped at 20% of the ex-factory cost for most segments.

The reduction in subsidies could potentially lead to an increase in the price of electric vehicles for consumers. However, the government is hoping that the lower incentive amount will be offset by other factors, such as decreasing battery costs, economies of scale in EV production, and potential tax benefits for electric vehicles. Ultimately, the success of this approach depends on whether the cost of EVs can become competitive with gasoline vehicles without the need for high subsidies.

Challenges and Concerns

• Higher Vehicle Prices: Reduced subsidies are likely to make electric vehicles more expensive, potentially discouraging some buyers who are on the fence about making the switch. This could slow down the overall growth of the EV market in India.
• Inventory Clearance Issues: Manufacturers with existing stock face difficulties as vehicles need recertification for EMPS benefits. This creates a hurdle in clearing out existing inventory, potentially leading to a temporary sales slump. To mitigate this issue, the government could consider offering a grace period for selling existing stock under the old FAME II subsidy structure.

Focusing on Key Segments and Moving Away from Incentives

• Despite the challenges, EMPS prioritises the two-wheeler and three-wheeler segments, the ones that have driven India's EV growth due to their affordability and practicality. This targeted approach aims to maximise the impact of the remaining subsidies by focusing on the areas where they can have the most significant influence.
• EMPS can be seen as a step towards a future with minimal reliance on incentives for the EV sector. The ultimate goal is for the EV market to become self-sufficient and grow organically without needing government subsidies to prop it up.

Learning from Global Examples for Long-Term Success

For a successful transition away from incentives, India can learn from other countries that have implemented similar programs:

• Gradual Reduction: China's three-year phase-out plan with gradually decreasing subsidies provides a good example of how to wean the EV industry off financial support in a measured way. This allows manufacturers and consumers to adjust to the changing landscape and make informed decisions.
• Zero-Emission Mandates: Mandating a minimum number of electric vehicles in a manufacturer's fleet can accelerate electrification. This policy tool pushes manufacturers to invest in and develop electric vehicle technologies, which can lead to a wider range of EVs becoming available to consumers.
• Non-Fiscal Incentives: Strategies like free parking, preferential traffic lane access, and even restrictions or bans on the sale of combustion engine vehicles in certain areas can further incentivize EV adoption. These non-fiscal measures can make electric vehicles more attractive to consumers without directly relying on government subsidies.

Status of Electric Vehicles in India ●India is the world's third-largest automobile market, and electric vehicles are rapidly gaining traction. According to Invest India, the market is expected to see a 49% compound annual growth rate (CAGR) between 2022 and 2030, with 10 million annual sales projected by 2030. ●The International Energy Agency (IEA) reports that electric two-wheelers and three-wheelers are the frontrunners, driven by affordability, lower running costs, and ease of charging and parking. In 2022, electric three-wheeler sales reached a staggering 55% of new sales.

Conclusion

• EMPS signals a transition towards a post-incentive era in India's electric vehicle market, emphasising sustainable growth and market-driven development. However, its effectiveness will depend on addressing challenges and leveraging complementary strategies to maintain momentum in electric mobility adoption.

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Source:

DOWNTOEARTH

PRACTICE QUESTION Q. The current cost of electric vehicles in India is a significant barrier to mass adoption. How can India incentivize domestic production and technological advancements to bring down the upfront cost of EVs, while simultaneously ensuring a skilled workforce exists to maintain them?