Urban growth and high e-commerce adoption, among other factors, are deteriorating India’s air quality. The cost of this progress, as with many countries, has taken its toll. Unfortunately, some of our largest Indian cities are among the most polluted in the world. Citizens’ right to clean breathable air is a fundamental need and is an important criterion in the global standards used to list the world’s happiest and livable cities. Thankfully, India has set promising targets and has taken several steps to bring in both accountability and action. For example, the government aims to reduce carbon emissions by 45% by 2030.
In 2019, it launched the National Clean Air Program as a strategic intervention to reduce air pollution levels across the country. City-specific Clean Air Action Plans have been prepared and implemented for implementation in 132 cities. Meanwhile, the Zero campaign by NITI Aayog and Rocky Mountain Institute is creating awareness about adoption of fleet of Electric Vehicles (EVs) for last mile delivery. According to NITI Aayog, urban freight vehicles account for more than 10% of transport-related CO2 emissions in India, which is set to increase to around 115% by 2030. As per news reports, at least 30 of India’s top EV and delivery aggregator service providers have pledged their support.
Meanwhile, Delhi, Mumbai and Bengaluru are upgrading their public transport facilities, though they still use internal combustion engine (ICE) vehicles. The transition from ICE vehicles to EVs is critical to reversing the impact on air quality. China reduced air pollution in its major cities Shanghai and Beijing by limiting ICE vehicles, moving polluting units and using EV incentives, among other steps. A look at eco-conscious markets such as Norway and Iceland paints a clearer picture of how rapid EV adoption can meaningfully reduce pollution levels.
ICE commercial vehicles are major users of diesel in India, which is our most widely used fuel. To be sure, 16 Indian states have proposed independent EV policy frameworks, but these do not include light commercial vehicles (LCVs). Incorporating policy incentives to shift logistics service providers to electric LCVs could encourage the use of cleaner alternatives and improve urban air quality. Other considerations include incentives to EV original equipment manufacturers (OEMs) and a green tax imposed on ICE vehicles that can restrict ICE vehicle use based on emissions and time spent in urban areas. An effective policy framework for charging infrastructure would also help. As of now, no distinction has been made between slow, medium and fast charging set-ups, and our recent battery swapping policy applies more to the 2W and 3W segments than their 4W counterparts. A push for a reliable pan-India fast-charging network will be an essential driver of EV adoption across vehicle categories.
In addition to developing the charging station network, lowering the cost of ownership and bringing in more fleet financing options will support the rate of EV adoption for commercial transportation. Total cost of ownership (TCO), a key determinant, for EVs needs to be parity with ICE vehicles. While battery replacement costs are expected to drop by 40-45% over the next decade, accelerating this reduction will depend on India’s self-reliance in battery raw materials and manufacturing. An upfront subsidy could be introduced for fleet owners to buy commercial EVs. Recently, NITI Aayog recommended inclusion of EVs and EV-charging in the Reserve Bank of India’s framework for priority sector lending. This will help finance EV fleet conversion, as 60-70% of the vehicles get little or no difference in interest rates.
India’s fleet vehicle financing penetration is relatively strong, with almost all commercial vehicles purchased on loan. Hence, finance availability and vehicle resale price buoyancy will be critical for mass electrification. Loans for electric vehicles could be made more efficient. While banks typically offer a 25-50-basis-point leverage on ESG (environmental, social and governance) assets, lending institutions currently take a hit at their bottom line in providing ESG finance.
Going clean and green is the need of the hour. A healthy ecosystem will generate high economic benefits from all the activities it supports. India has the potential to leapfrog into a global leadership position on the commercial EV front. It is one of a handful of countries to support the global ‘EV30@30’ campaign, which aims to have 30% of all new vehicle sales electric by 2030. Prime Minister Narendra Modi has urged for “Sabka Prayas” (Efforts of all). In this spirit, the involvement of relevant industries, local governments and communities in the EV-transformation drive can bring India closer to that goal.
Encouraging innovation among new-age electric OEMs and helping to build a talent pool that will fuel this growth story is equally important. The future of urban logistics is better served by clean and sustainable energy, with electricity at the forefront of alternative energy options. Our cities deserve better logistics for today’s population as well as for generations to come. We have transformed seismic technology with smartphone proliferation, connectivity and UPI payments, opening up opportunities that define the generation. Commercial EVs could give us another big leap towards a better future.
Rahul Saraf, MD, Head of India Investment Banking, Citi contributed to this column.
Inderveer Singh and Jason Wortendike, respectively, Founder and CEO, Eways; and Managing Director, Global Co-Head, Diversified Industries, Citi