SMEV bats for GST rationalisation on components for the EV segment to charge ahead

Sohinder Singh Gill, CEO of Hero Electric and Director General of the Society of Electric Vehicle Manufacturers of India (SMEV), has been championing the cause for India’s fledging EV industry and pushing the government towards offering supply-side support like the rationalisation of the GST or goods and services tax.

In an exclusive interaction with Autocar Professional, Gill points out that while India has made rapid strides in EV adoption, other initiatives like R&D for localisation of products, supply-side support, charging infrastructure, and GST rationalization are much needed to spur the EV ecosystem in the country.

“It is important at this juncture that we focus on building a strong EV ecosystem that makes us self-sustainable. We believe that no policy can be cast in stone and must be dynamic to factor on ground challenges during its implementation.”

Gill adds that with government support, the Indian EV industry can become a global hub for EV exports. We ask him what his expectations are from the Union Budget FY2023-24.

What would be your top asks from the finance minister (FM) on the taxation-related concerns for the EV industry?
In my view, uniformity of the goods and services tax (GST) is the single-largest ask of the EV industry. While 5% GST is levied for the vehicle; for spare parts, there is no clarity and the industry ends up paying up to 28% (except for batteries). The request, therefore, is for levying a uniform 5% GST on all EV spare parts.

In addition, as we all have to presently import lithium-ion cells and I would request that the government reviews and negates the customer duty on Li-ion cells to 0% until we have localised cell manufacturing in India.

Should the government’s EV-centric FAME subsidy be extended beyond 2024?
The new FAME-II scheme should be linked to electric mobility conversion rather than being time-based. According to market trends, the electric two-wheeler segment has the potential to continue its growth momentum, once it reaches 20% of the total 2W market. The subsidy can be tapered off thereafter. Also, the FAME-II scheme should have provisions to directly transfer the subsidy to the customers.

The Auto Expo 2023 saw new launches in the e-LCV, trucks, and heavy commercial vehicle segments as well. How can the Budget give a fillip to these categories?
I will say that the finance minister should increase the scope of FAME to include commercial vehicles on a project-mode basis. Today, trucks account for over 40% of India’s fuel consumption and over 40% of the greenhouse gas emissions across the road transportation sector.

The agricultural sector is also waiting for disruption from EVs much like two- and three-wheelers. I would urge the FM to expand the FAME subsidy to electric tractors to help India cut down on its fuel-import bill as well as carbon emissions.

In addition, the government must allocate special funds and advise the agriculture ministry to announce exclusive provisions for incentivising e-tractor buyers in the sub-mission on agricultural mechanisation (SMAM) guidelines and allocate state-wise yearly targets for electric tractors.

EV OEMs have been demanding support for battery R&D. What are your thoughts on the same?
India lacks R&D on battery storage for EVs, hence, the government can consider creating grants/incentives to stimulate innovation in this sector. We must also focus on skill development in a big way as the non-availability of skilled manpower for R&D, production, or repair can become a huge issue as EVs scale up. The government must allocate incentives for building academic or skill training courses particularly for EVs.

How can EV financing gain more traction in the financial ecosystem?
What you say is a given demand and this must be done. Another important step is to extend the guarantee being offered by NITI Aayog and the World Bank through SIDBI even for commercial four and six-wheelers.

Finance Minister should also help reduce the interest rate for loans taken by pure EV OEMs for setting up EV manufacturing facilities.

For EV penetration, a critical requirement is to enable a wide network of charging infrastructure. The government is required to provide a CAPEX subsidy of 50% for setting up charging infrastructure across the country.

What do you think about the PLI scheme and PLI Domestic Value Addition norms?
We are of the view that the production-linked incentive (PLI) scheme drafted is not designed for start-ups and MSMEs. I would request our finance minister to include MSMEs within the PLI ambit as they are struggling for capital and their wings must be strengthened by the government.

On the PLI Domestic Value Addition (DVA) norms, there is no clarity on the proposed DVA norms under PLI.  DVA under FAME 2 was quite different than whatever we have heard under PLI DVA. Both FAME DVA and PLI DVA must be the same to avoid confusion, multiplicity, and complexity of implementation.

Experts have called for a consortium of Oil OMCs to install battery swap hubs at most fuel stations. What are your views on battery swapping and the steps the government should take to encourage swapping?
SMEV also recommends that a consortium of the four large oil and gas OMCs – IOCL, BPCL, MNGL & IGL – with a special corpus to install battery swapping stations at major fuel stations will give this category the much-needed impetus.

The battery swapping policy, which was announced in the last Budget, however, must be introduced soon. We would also recommend reduction in GST in swapping as it will lower the cost of EV ownership among fleet operators, and last-mile delivery companies.

Another worrying factor is that customers are charged 18% GST on every transaction that they undertake at an EV charging station and every battery swapped at a Battery Swapping Station. This must be reduced to 5% GST, which is the base level GST for EVs.

While corporate customers can take the input tax credit on the GST paid during this transaction, retail customers do not have such an option and they absorb the tax as a cost. I would urge the FM to extend the FAME-II incentives for extra or float batteries for battery swapping as per the draft EV policy which mentions that.

Do you think tax rebates should be extended for R&D in lithium-ion battery recycling?
Certainly, for research & development expenses related to battery recycling, a 200% tax rebate, as before, may be considered. But more importantly, we urgently need a policy on Li-ion battery recycling as its five years now that various companies have set up facilities and the government guidelines on recycling should be implemented with immediate effect. I will also say recycling agencies must be recruited by the government with a tender issued for agency recruitment.