Electric Vehicles Vs Hybrids, Or Both: Union Budget 2024 May Show The Way 

Both parties expect the long-debated topic of Electric Vehicles versus Hybrids to be settled once and for all with what allocations Finance Minister Nirmala Sitharaman announces for the two.

The advent of EVs have been disruptive in the automobile industry. While traditional cars are still the people’s favourite, government subsidies as well as lower Goods and Services Tax (GST) rate for EVs have helped them sustain.

To promote sustainable mobility and curb carbon emissions, the government in 2015 came out with the first phase of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) with a budgetary outlay of Rs 895 crore.

The Ministry of  Heavy Industries and Public Enterprises scheme aims to promote EVs by incentivising manufacturers with subsidies. 

FAME in its first phase ran from 2015 to 2019. Subsequently, the second phase was launched in 2019 for three years wherein the government increased allocations for Fame II by ten-fold to Rs 10,000 crore. It got another boost with an additional Rs 1500 crore allocated to it when it got a four-month extension, totalling the outlay to Rs 11,500 crore.

When FAME II ended on March 31, 2024, the government came out with a bridge scheme, Electric Mobility Promotion Scheme (EMPS) 2024, till it could fine-tune FAME III. The EMPS 2024 was launched with an outlay of Rs 500 crore from April 1 to July 31, 2024.

Apart from the FAME subsidy, the GST rate on EVs is lower than its Hybrid counterparts—a segment of vehicles which is greener than the traditional Internal Combustion Engine (ICE) driven vehicles. 

The GST levied on EVs is 5 per cent, whereas Hybrids up to 4 metres with a 1200 cc petrol engine or a 1500 cc diesel engine pay 28 per cent GST with no extra charges.

Hybrids above 4 metres in length or have engines above 1200 cc (petrol) or 1500 cc (diesel) are levied 28 per cent GST plus an extra 15 per cent tax.

Government subsidy initiatives, such as FAME, and the GST rate for EVs will likely play a key role in achieving its stated ambition of having an EV penetration rate of 30 per cent by 2030; to achieve the Net Zero goal by 2070. 

According to a report by the International Energy Agency, road transport accounts for 12 per cent of India’s energy-related CO2 emissions and is a key contributor to urban air pollution. 

The report says, “As India seeks to meet the increasing demand for private mobility and the transport of goods, energy use and CO2 emissions from road transport could double by 2050.” With these issues in mind, the government’s EV push is not only justified but also important.

But, it is not only EVs that are green and sustainable. Working towards sustainable mobility, India will also have to look at Hybrids as an option, especially Strong Hybrids.

The Secretariat had earlier argued how the government should consider Hybrid vehicles sustainable and extend policy support to the segment equally.

Where Does The Market Stand On Its Demands

EV makers are hoping the government rolls out the third edition of the FAME in the upcoming Budget and have sought stability with the incentives.

Some have also demanded adequate funding to fill the infrastructure gaps in the charging ecosystem. Another issue that EV makers are pushing for is the rationalisation of tax on EV components including battery packs.

On the other hand, Hybrid makers are hoping that Minister of Road Transport and Highways Nitin Gadkari will keep his word on reducing GST levied on Hybrid vehicles.

Recently, Japanese carmakers like Maruti Suzuki India, Honda Cars India, and Toyota Kirloskar Motor successfully lobbied for the waiver of registration fees on Strong Hybrid vehicles in Uttar Pradesh. Only EV makers were enjoying such waivers earlier.

The Centre can also look at cutting GST on Strong Hybrids, making them more affordable as they are far more environment friendly than Mild Hybrids. Not only that, their fuel economy is much higher, making them more appealing to the consumer.

Experts' View

Experts noted that if the charging infrastructure gap is tackled, it could improve EV adoption greatly. 

P Tharyan, Editor, Motown India, a leading automotive portal, said, “Among the areas that need to be given importance should include charging infrastructure, which is one of the obstacles keeping the adoption rate subdued.”

He attributed lack of infrastructure to be the reason why EVs in India have not taken off like in the rest of the world, especially in China and smaller European countries.

On the demand of Hybrid carmakers to lower GST, experts said it should be the government’s decision whether to support Hybrids or not. 

“If the Centre feels that it only wants to support EVs, that would also be fair, because at the end of the day, Hybrids are using gas-guzzling engines functioning on minute support from lithium-ion batteries—that’s not fully that green, to be honest,” added Tharyan. He did make an exception for Strong Hybrids and GST for these can be reduced.

He suggested if the government were to rationalise GST for Hybrid vehicles, it should be marginal, noting that Hybrids are not all that green to be pushed as a green alternative. 

For EV maker's demand for stability in incentives, experts said the instability came into effect when the government learnt of false claims of localisation in the two-wheeler segment. The government slashed the subsidy for electric two-wheelers in July.

“However, despite the slashing of the subsidy for electric two-wheelers, the demand was resilient and gave a peek into on how the market is,” he added.

That said, for heavy vehicles, stability in incentives can have a big influence on the adoption rate of electric vehicles.

While the government may try to please all lobbies for incentives and relaxation, it will all boil down to whether the buyers benefit or not. Since it is the buyer who votes for the government.

Experts believed the decision of the government will be a wheel-within-wheel situation. “Manufacturers should hope the forthcoming budget has a focus on income and job generation, as well as relaxation in taxation because it is going dictate citizens' spending capacity, which will determine if people buy more or not,” added Tharyan.