Reviving the automobile sector

ECONOMY/ GOVERNANCE/ ENVIRONMENT

Topic: General Studies 2 &3:

• Indian Economy and issues relating to planning, mobilization, of resources 
• Government policies and interventions for development in various sectors

Reviving the automobile sector

Context: In the post-Covid world, electric vehicles will be key not only to breathing new life into the automotive sector but also to decarbonising it

Did You Know?

• By 2050, every second car produced globally would be electrically powered. 
• Research by Deloitte Global Automotive shows that over 50% of the consumers are still unclear about the safety of the battery and the availability of adequate charging stations leading to slower adoption of E-vehicles

Problems of Indian Automobile Sector 

1. In pre-COVID times
   • Declining consumer demand
   • Difficulty in transitioning into BS-VI technology
   • Extinguishing inventories of left-over BS-IV vehicles
   • Credit crunch in the NBFC sector
2. In Post-COVID times
   • Challenges of dealing with a completely new environment – rising protectionism and decline in international trade
   • Decreased purchasing power of consumers
   • Disruption in manufacturing capabilities
   • Issues with inventory management and labour shortages
   • Need for emergency response mechanisms in the backdrop of disrupted global supply chain

India and E-Vehicles

• Strong growth: The EV industry in India managed to post a decent 20% increase in sales in FY20 compared to FY19
• Policy Push by government for e-vehicles: The GST council reduced the rates from 12% to 5% for vehicles, and from 18% to 5% for vehicle chargers. 
• Push by State governments to adopt e-vehicles For ex: Kerala government has instructed all its departments to purchase only e-vehicles from the next financial year.
• Dedicated schemes like FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) have incentivised local manufacturing and the growth of domestic technology.

Electric Vehicles – Prospects in Post-COVID times

• Personal mobility is going to pick up again post-Covid, as people would avoid mass transport thus giving boost to e-vehicles
• Driver of growth: In Post-COVID times, fastest growth for automotive sector would come from the e-rickshaws segment that plugs last-mile connectivity.
• India’s Demographic advantage: Surveys point that younger consumers, particularly females, are more willing to invest in EVs than older generation. 
• Environmental friendly: Increased environmental awareness among public, especially after COVID crisis, could lead to increased adoption for e-vehicles

Way Ahead

• There should be a further policy push for a visible shift towards increased EV adoption
• Banks should devise innovative credit schemes to push for such a shift.
• The government should focus on augmenting the charging infrastructure 
• Governments should also have in place a scrappage policy that drives new-vehicle sale.
• Existing automobile companies should make e-vehicles more affordable and maintenance easier, with quick availability of parts (no dependence on import)

Conclusion

• EVs are the only way to decarbonise the transport sector and achieve India’s ambitious target of complete green mobility by 2030.

Connecting the dots:

• EV Batteries – dependence on China for supply of Lithium
• Challenges with regard to air transport in Post-COVID times