Govt does a U-turn, proposes hybrid car subsidy in India

New Delhi: The department of heavy industries has asked the expenditure finance committee (EFC) for a subsidy of ₹ 13 crore to promote hybrid cars, indicating a shift from the government’s earlier refusal to offer subsidies on such vehicles. In a meeting with the committee on 23 August for the second phase of the Faster Adoption and Manufacturing of Electric and Hybrid vehicles (FAME) scheme, the department sought incentives for potential buyers of 10,000 hybrid cars fitted with lithium-ion batteries of 0.5-2 kilowatt hour (kWh).

The minutes of the meeting have been reviewed by Mint.

The move follows intense lobbying by automakers such as Toyota Kirloskar Motor Pvt. Ltd (Prius and Camry hybrid cars) Maruti Suzuki India Ltd (Ciaz hybrid) and Honda Cars India Ltd, which favour India promoting hybrid cars. However, some Indian firms such as Mahindra and Mahindra Ltd and Tata Motors Ltd supported the transition directly to electric cars. Mahindra has e2O and e-Verito in its electric car line-up while Tata has the Tigor electric.

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Several Japanese firms have been unhappy with the lack of government support. Toyota withdrew its hybrid cars from India after the government’s decision to place hybrids under the highest GST slab of 28% plus 15% cess hampered sales.

To be sure, EFC, which is under the finance ministry, did sanction ₹ 5,500 crore under the FAME Scheme in September. But the prime minister’s office subsequently rejected the draft of the second phase of the scheme and emphasized incentives for manufacturing lithium-ion batteries in India.

According to R.C. Bhargava, chairman of Maruti Suzuki, the government has now come around to the view that electric vehicles alone will not be able to solve the problems of oil imports and rising pollution. From now till 2030, only 10-15% of the total vehicles will be electric. “So something needs to be done about the 85% of the vehicles,” he said.

“The PM has spoken about CNG and methanol-based vehicles as an alternative and hybrid cars can be the third one,” he said. “It’s not a sudden decision—it has been debated for some time and the government did the right thing and refined the policy.”

Last year, the government placed hybrid cars in the highest slab of GST. But electric cars were put in the 12% slab, signalling the government’s intent to promote only electric vehicles.

Subsequently, the government reversed its position and decided to promote all technologies that reduce emissions, but stopped short of cutting taxes on hybrid cars.

An expert, however, sees it as a short-term approach.

“This must be a short-term approach to promote hybrid vehicles till the electric vehicle ecosystem is developed. Hybrids have matured and are cleaner than vehicles with internal combustion engines. Overall, the focus of the government should be on green mobility,” said Suvranil Majumder, head, EV projects, International Finance Corp., the private sector arm of the World Bank group.