Who is bent upon decimating the Auto Sector in India?

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Lalit Shastri

Bajaj Auto Chairman, Rahul Bajaj, while addressing shareholders at the company’s annual general meeting last month (July 2019), held the government responsible for falling demand and poor private investments in India.

The auto industry is going through a very difficult period. Cars, commercial vehicles, and two-wheelers are going through a rough patch – Rahul Bajaj

There are two pillars of the Indian economy – Information Technology and automobile Industry. The Government, NITI Ayog and other official agencies are going all out to decimate the auto sector.

First there is a proposed increase of road tax and registration fees for conventional vehicles in a country where no infrastructure exists. Second, we are recklessly jumping from BS-IV to BS-VI emission norms. In this area, a huge investment is required with no certainity because the Government wants the internal combustion engines to be phased out completely by 2024.

We cannot compare ourselves to countries like Norway and Sweden where there is little population and huge infrastructure. In 2017, Norway had achieved the target for transport related emission by 2020. The Scandinavian country could touch that milestone as fifty per cent of the new cars sold that year were electric or hybrid. This is particularly significant since the target for emission was even 10 grams/kilometre lower than the standard set by the European Union.

India is a vast country, where due to infrastructure related gaps, it is difficult to set up charging stations and other related facilities. Due to the large number of charging stations that would be required in India to serve the large number of electric vehicles, the carbon footprint wont come down because most power generation in India is coal based. This problem would get further magnified by vehicle type, and the grid profile – two factors that would leave further impact on CO2 emissions.

India’s political executive, besides the policy planners, along with the implementing arm of the government, are not supposed to be ignorant of the fact that raw materials are not available locally (in India) to manufacture lithium ion batteries. Much of the rare earths are with china. Chinese lithium reserves in 2018 were one million metric tons, the highest in the world. BloombergNEF has analysed that in early 2019 there were 316 gigawatt-hours (GWh) of global lithium cell manufacturing capacity. China is focused on controlling the world’s production of lithium ion batteries and commands 73% share in terms of capacity, followed by the U.S., in second place with barely 12% of global capacity.

When spot demand for lithium soared in China, prices climbed. Now when the demand of Lithium ion batteries would be rising by the day as they have become the dominant battery technology in major markets, with India also not far behind in adding to this demand, the pressure upon the raw material supply chain would be significant and as the producers would be engaged in hiking capacity, the prices would soar further instead of coming down, more so as it takes anywhere close to 10 years to bring on stream a new greenfield mine.

In the present scenario, prospective buyers would think twice before purchasing an EV as there is total dearth of recharge stations in the country. While inadequate driving range, congestion and traffic snarls also would be counter-productive, especially from the point of view of those trying to freeze the IC engines within a sharp and most impractical deadline. Also there is one more pitfall vis-a-vis India when it comes to lithium ion batteries. The problem is we do not have the waste recycling and disposal technology and let’s not forget that lithium ion is highly contaminating and dangerous.

Large number of Micro, Small & Medium Enterprises (MSMEs), ancillaries and jobs depend on automobile industries. It’s high time those at the helm read the writing on the wall and take immediate steps to stop the bureaucrats with a background that’s largely superficial and incompatible with the dynamics of taking the country’s economy on a rising trajectory from running amok.

Central Government, NITI Ayog and FAME India

NITI Aayog, in a meeting held on 14 May, 2019 regarding National Mission for Transformative Mobility and Battery Storage has formulated an action plan to run electric two-wheeler and three-wheeler vehicles and has proposed to ban all IC (internal combustion) engine powered two-wheelers and three-wheelers in Indiastarting in 2025 for two-wheelers andin 2023 for three-wheelers. For the promotion of electric vehicles in the country, the Department of Heavy Industry has notified Phase-II of the FAME India Scheme [Faster Adoption and Manufacturing of Electric (& Hybrid) Vehicles in India], vide S.O. 1300 dated 8thMarch 2019, with the approval of Cabinet with an outlay of Rs. 10,000 crore for a period of three years commencing from 1stApril, 2019.

In order to promote electric vehicles, the Government earlier notified for retro-fitment of hybrid electric system or electric kit to vehicles and has specified the type approval procedure of electric hybrid vehicles.

In October 2018, the Union Government granted exemption to Battery Operated Transport Vehicles and Transport Vehicles running on Ethanol and Methanol fuels from requirement of permit.

For the promotion of electric mobility in the country, the Government had launched Phase-I of the FAME India Scheme [ Faster Adoption of Electric (& Hybrid) Vehicles in India] with effect from 1 April 2015. This was initially for a period of 2 years and was subsequently extended till 31 March 2019. All electric & hybrid vehicles, including public transport, registered under this scheme were being incentivized under the Demand Creation focus area of this scheme.

The Indian Space Research Organisation (ISRO) has commercialized indigenously developed lithium ion battery technology and has selected 14 companies for transfer of technology. But this is far from the solution as the cost and procurement of raw material to produce lithium ion batteries would be the first major hurdle to be crossed by new entrants in this field in India that would be competing with the Chinese goliaths.

The NITI Aayog has taken an initiative to provide a Model Concessionaire Agreement (MCA) document for introducing Electric-Bus Fleet in Cities for Public Transportation on Public-Private Partnership (PPP) mode on Operational Expenditure (per km basis) Model rather than paying upfront capital cost.

Ministry of Housing and Urban Affairs has made amendment in the Urban and Regional Development Plans Formulation and Implementation (URDPFI) guidelines to provide for electric vehicle charging stations in private and commercial buildings.

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