Electric change evs are the future but a premature transition through bad policy is undesirable

Electric change evs are the future but a premature transition through bad policy is undesirable

The electric vehicle market for two-wheelers in India is at the crossroads. Around 81% of the 18.6 million vehicles sold last year were two-wheelers. Therefore, if the industry transitions from one dominated by vehicles run through internal combustion engines to EVs, it will be in sync with India’s climate change goal. To quicken the transition, GoI provides a subsidy to lower the cost of ownership and some states top up with yet another subsidy. This supportive policy environment has encouraged both traditional manufacturers and newer ones such as Ola Electric to enter the EV market.

The enthusiasm for EVs sometimes leads to calls for unsound policy changes. To illustrate, in 2019, Niti Aayog proposed all two-wheelers running on combustion engines be banned by 2025. Echoing that approach, Ola’s co-founder has called on incumbents to reject petrol and fully commit to electric. These prescriptions need to be unpacked. Public policy has provided a boost to EVs through a set of financial incentives to stoke demand. That’s consistent with the approach to dealing with climate change. However public policy needs to also consider other consequences. Two, in particular, are important.

Combustion engines subsidise EVs as fuel taxes have emerged as one of the biggest sources of revenue for government, and one that shored up budgets in a pandemic. Revenue stability matters as governments perform many indispensable functions. Separately, there are strategic issues to consider. China dominates both processing and manufacturing of Lithium-ion batteries. Moreover, mineral ores and concentrates for them are found in just a few countries, with China again having a key position. A policy that skews towards a premature transition to EVs can have unintended consequences. For now, India’s subsidised EVs should focus on competing with combustion engine vehicles, which have consistently met escalating tailpipe emission standards.