India is a key emerging market for electrification of transport, being the fourth largest light-duty vehicle manufacturer globally. The Indian automotive market has average annual sales of about 15 million two-wheelers, 0.5 million three-wheelers, 3.2 million passenger cars, 0.6 million light commercial vehicles (less than 3.5-ton GVW), and about 0.4 million medium-heavy commercial vehicles (MHCV). The push for electrification has been gaining momentum in recent years but has not translated into strong policy and regulatory action. As part of creating a ZEV Transition Policy Pathway for India, it will be important to investigate policy, regulatory, technology, and investment strategies based on rigorous market and techno-economic analysis. Additionally, well-designed ZEV policy has the potential to leverage valuable engineering and innovation capacities in creating cost-competitive EV technology that appeals to the Indian market and the global South, further opening opportunities for market access.
A strategic and sustainable ZEV transition pathway needs to be based on the economic pillars of value addition, employment generation and manufacturing competitiveness. Further, given the significant share of MSME clusters in the Indian automotive manufacturing landscape, clear supply side regulations and a pathway for a ZEV transition will provide much needed market certainty, and the flow of technology and capital to facilitate a broader industry transition.
At the national level, the Department of Heavy Industries, Government of India, in April 2022, had requested the Indian automotive industry to carry out a study on a long-term policy roadmap including vehicle emissions, electrification, incentives, disincentives, and taxation policy, including assessing the feasibility and applicability of international regulations on Indian vehicles across all segments and their impact. The Bureau of Energy Efficiency, under the Ministry of Power, Government of India, is also currently evaluating the potential pathway for new fuel efficiency and CO2 regulations for medium and heavy commercial vehicles, as well as the possibility of a CO2 credits and trading mechanism for automotive manufacturers across segments.
India has already taken key policy measures to stimulate demand for EVs in the past few years and is well-positioned to implement supply-side regulations and policy measures that can boost domestic manufacturing and provide clear market signals for manufacturers to mainstream EVs in their portfolio making more options available to consumers at affordable prices. Presently, vehicle emission regulations include the Bharat Stage VI (BSVI) which regulates non-CO2 emissions and the CAFE regulations (currently only for LDVs) which regulate fuel efficiency and CO2 emission requirements. India also implemented Phase II of the CAFE regulations from April 2022, requiring the average LDV fleet emissions to be 113 gCO2/km from the earlier target of 130 gCO2/km. This remains significantly higher compared to other countries such as the EU, where the current requirement is 90 gCO2/km.
On the demand side, the FAME II incentive scheme provides upfront purchase subsidies for electric vehicles across segments. Recently, India increased the demand incentives for electric two wheelers, focusing on this segment as it is often serves as the primary personal mode of
transport for many households and makes for a large part of the rapidly growing intra-city delivery fleet. Three-wheelers, on the other hand, serve a significant need of public transport and first/last mile connectivity across both rural and urban India.
Even though the FAME II scheme requires aggressive localisation targets by automotive manufacturers to be eligible for subsidies, most suppliers are unable to comply given the low sales volumes of EVs and lack of policy certainty. India has taken key initial strategic steps towards this with the implementation of the Production-Linked Incentive (PLI) Schemes for manufacturing of EV and EV components, and advanced cell chemistries. This reiterates the need for a ZEV roadmap that provides clear market signals to the supply side, identifying the key building blocks for a ZEV transition, and thus, furthering ZEV adoption by promoting investments and bringing down vehicle costs. Policy, regulations, and incentives should be matched to this ZEV roadmap to streamline market forces that will help promote a ZEV transition.
Research Objectives
- Review various ZEV policy options based on global experiences including California, China, and Europe
- Detailed data development for the Indian automotive market by vehicle class and technology, allowing strong policy analysis to be undertaken on an empirical basis
- Develop potential pathways to Indian ZEV target(s), and alternative policies for reaching these targets, such as 100% ZEV sales by 2040 or net zero by 2070 across vehicle segments including passenger vehicles, light and heavy commercial vehicles, buses, two- and three-wheelers
- Scenario analysis of various alternative ZEV policies based on combinations of regulatory pathways and preferred mechanisms, such as
- Producer incentives for ZEV manufacturing
- Fuel efficiency and CO2 norms
- Minimum ZEV sales mandates
- Emission-based vehicle taxes and rebates
- Zero Emission Vehicle Credits Program