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Mobilising Electric Vehicle Financing In India Report By NITI Aayog

Mobilising Electric Vehicle Financing In India Report By NITI Aayog

Why in news?

  • NITI Aayog and Rocky Mountain Institute(RMI) India jointly releases a new report titled ‘Mobilising Electric Vehicle Financing in India’.
  • The report highlights the role of finance in India’s transition to electric vehicles(EVs).
  • Further, the report also identifies solutions for capital and financing to aid in India’s EV transition.

Key findings

  • Indian EV market size to be of USD 50 billion (Rs 3.7 lakh crore) by 2030, which is equivalent to 80% of the current market size of India’s retail vehicle Finance Industry at USD 60 billion (Rs 4.5 lakh crore).
  • To achieve the targeted transformation, there needs to be 2 capital investment of USD 266 billion (Rs 19.7 lakh crore) in EVs, charging infrastructure, and batteries by 2030. Re-engineering vehicle finance and mobilising public and private capital will be critical to accelerating the deployment of the 50 million EVs that could be plying on India’s roads by 2030
  • Identified Hurdles for Transformation — Technology cost, Infrastructure availability, and Consumer behaviour.

Targeted Instruments

  • Priority sector lending (PSL): The Reserve Bank of India (RBI) requires 40 percent of net bank credit to be deployed towards priority sectors. Inclusion of EVs in PSL guidelines would incentivise banks to increase lending towards the sector.
  • Interest rate subvention: Subventions act as a subsidy on commercially offered interest rates, with the government bearing the balance through associated banks. Such schemes would substantially improve the affordability of loans. They have already been enacted in other sectors and at a state level for EVs in Delhi.
  • Product guarantees and warranties: Reducing the uncertainty associated with EV models will improve their bankability. Original equipment manufacturers (OEMs) can provide assurances in the form of guarantees (to FIs) and warranties (to buyers) on the performance of their products.
  • Risk-sharing mechanism (government and multilateral-led): Mechanisms and facilities that partly or entirely cover possible losses associated with financing EVs (due to their unclear resale value) can be capitalised at the national or multilateral level. These would distribute risk and provide FIs with an opportunity to build their trust in the sector.
  • Risk-sharing mechanism (fleet operator-led): Fleet operators and final-mile delivery companies can leverage their existing FI relationships to provide partial credit guarantees and utilisation guarantees to driver-partners. They could share the risk between stakeholders in case of default and enhance loan availability for delivery drivers.
  • Secondary market development: Industry-led buyback programmes and battery-repurposing schemes will help OEMs and the central government catalyse a secondary market for EVs. This would improve the residual value of EVs, providing FIs with an avenue for resale in case of borrower default.

Ecosystem Enablers  | Mobilising Electric Vehicle Financing In India Report By NITI Aayog

  • Digital lending: Digital sourcing, underwriting, and sanctioning can streamline EV loans by helping overcome the operational and logistical challenges of vehicle financing.
  • Business model innovation: Piloting and commercialising new business models, combined with the flow of patient capital, can demonstrate the potential of the sector. Additionally, they would help build trust in EVs and normalise them in the market.
  • Fleet and aggregator electrification targets: The electrification of final-mile delivery, ride hailing, and corporate transport fleets can act as a strong market signal for stakeholders across the ecosystem, especially OEMs and FIs.
  • Open data repository for EVs: FIs need access to data on EV specifications, real-world drive cycles, actual charging costs, and operating expenditures. This will help such institutions accurately assess risk, determine appropriate interest rates, and design effective leasing programmes

Barriers To EV Adoption

Despite improving economics and growth across the ecosystem, many well-documented barriers to EV adoption in India remain, including:

  • Technology cost: In a few segments, the high upfront cost of EVs is slowing adoption despite the potential for lower TCO. There is an ongoing need to further reduce the upfront cost and TCO in many use cases through various instruments.
  • Policy implementation: National-level policy can be complemented with added fiscal incentives at the state level. Non-fiscal incentives will also be important in developing a favourable operating environment and customer confidence for EVs.
  • Manufacturing and supply: Despite growing product diversity, there is still a need for greater customized product and model availability, and more fit-for-purpose models. Further, more domestic manufacturing of advanced batteries and cells, battery management systems, electric motors, motor controllers, and other components is needed. OEM capital has recently focused on the migration of ICEVs to Bharat Stage VI (BSVI) standards, while the industry is experiencing lower sales due to COVID-19. This is hampering supply-side investment in EVs.
  • Infrastructure buildout: The introduction of advanced batteries and longer-range vehicle modes can address customer concerns about range. Alongside these developments, electricity distribution companies (discoms), charging service providers, and other actors can focus on building robust charging infrastructure networks. Using smart technology that communicates with the electric grid will unlock additional value from demand-side management.
  • Consumer behaviour: Demand for more affordable EV products is expected, as consumers reduce spending in the short term due to COVID-19. This potential shift in consumer preferences may affect manufacturers’ investment and production decisions

Some Government Interventions

  • In 2015, DHI, launched its flagship incentive programme, the FAME India Scheme, to accelerate EV adoption.
  • FAME II began in April 2019, with an outlay of INR10,000 crore towards EV adaptation & Infrastructure development.
  • GST on EVs sold with batteries was reduced from 12 to 5%.

Some Bank initiatives

  • SBI started the Green Car Loan, for buying electric cars.
  • IndusInd Bank offers retail vehicle finance for 3-wheeler electric Vehicles.
  • (Mobilising Electric Vehicle Financing In India Report By NITI Aayog)

 

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