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Government must avert transport poverty in EV sector

The electric mobility revolution is here, and nowhere is this more evident than in India. More than 1.1 million electric vehicleswere sold in the country in FY2022-23. In the case of two-wheelers,4.5 per cent of all vehicles sold were electric, while the number crossed the 50 per cent mark in the three-wheeler category.

However, there is a looming crisis that may unfold with the rise in the penetration of electric vehicles (EVs). This crisis pertains to the inability of people to access transportation at an affordable price. It is termed as transport poverty. Let’s look at transport poverty from the lens of two-wheelers and three-wheelers, which is the preferred modeof transport for a majority of people in India.

The reason for the possibility of transport poverty lies in the cost-economics of EVs in comparison to Internal Combustion Engine (ICE) vehicles. The upfront cost of anEV is 1.5-2 timesthat ofan ICE vehicle, whereas the operating cost of an EV is only10-20 per cent that of an ICE vehicle. Thus, it makes economic sense for higher-usage vehicles like commercial vehicles to shift to EVs at the earliest.

What happens to private vehicles that may be used sparingly for shorter distances, like vehicles used by college-going students or in peri-urban areas for shorter distances? The cost economics does not work out for them at present. Although technological advancements are lowering the costs of EVs at a fast pace, the equalisation of the upfront cost of EVs with ICE seems like a distant dream. The price gap widens much further when we remove the effect of subsidies being provided by the government on the purchase of EVs.

The problem of the higher upfront price of EVs is a deterrent to the purchase of EVs. To add to this, higher interest rates on loans for the purchase of new EVs aggravate this issue further. An electric vehicle gets a loan at an interest rate of more than 20 per cent, depending on the creditworthiness of the user,while it is nearly double the rate for ICE vehicles.

This difference in upfront price and higher interest, leads to a considerable increase in EMIs. It creates a huge affordability issue for a large population in India who either save for months to buy a two-wheeler or spend a substantial portion of their monthly income on the repayment of their vehicle loan. In a future scenario when the complete vehicular fleet shifts to EVs, the higher cost to acquire EVs may give rise to transport poverty for millions of people.

The solution

A key feature of the automobile finance market (two-wheelers and three-wheelers) is that large public sector banks (eg, the SBI) have stayed away from this market. That is why there was a rise of specialised Non-Banking Finance Companies (NBFC) like Bajaj Finance, Mahindra Finance, among others. The specialised NBFCs provided loans to vehicle owners at a cheap rate in a hassle-free manner. However, these NBFCs are slow to enter the EV financing space due to a variety of reasons, including the technology risk associated with EVs.

The answer lies with the Government of India to unlock this market. As in the case of SIDBI and NABARD, where a specialised financing agency was floated to cater to the needs of a specific segment, the government needs to float an EV-focused financing institution. The initial capital can be given by the Government of India and additional funding can be mobilised through global climate financing facilities like the Global Environment Facility.

The EV-focused financing institution can provide refinancing facility to the NBFCs and micro finance institutions that have a deeper penetration in the automobile financing space. The financing institution, backed by the Government of India, would just need to act as an initial catalyst to kickstart this market in the right direction. Later, market forces would take over and spur private financing companies to reap benefits in this segment.

EVs are a viable and technologically-proven solution that can decarbonise the transportation sector andhelp achieve our net-zero goals. It is also essential that EVs provide affordable mobility for all. In this context, Government-backed EV financing institutions would definitely expedite the process of a complete transition of vehicle fleets to EVs, and allay the fears of transport poverty for the masses.

(Abhishek Saxena, previously with Niti Aayog, is a consultant working on electric mobility and Climate Change. X:@MusingAbhishek)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.

(Published 17 October 2023, 07:17 IST)

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