Government Subsidy for E-Vehicles and Consumer Behavior in India

As in many other developing nations in the world, the Government subsidy for plug-in electric automobiles in India was a major influence on the consumer behavior in the industry. The government of India announced a fixed amount subsidy of 950 Million Indian rupees towards electric vehicles that started in November 2010 and catered to varying amounts of subsidies towards cars, minivans, and two-wheelers. The subsidy amount was consumed in the market at an accelerated rate and the government ended the scheme by March 2012. In April 2014 the government announced a new subsidy scheme for hybrid and electric vehicles that provided discounts piece rate wise for each vehicle sold. These changes in the incentives over the years, changed consumer behavior significantly, in the electric automotive industry of India.

Figure1: Source - Electric Vehicles in India Policies, Opportunities, and Current Scenario ADB Open Innovation Forum, Manila 20/05/2015

The markets for EVs started very small in India. The overall share of EVs to the automobile industry was a negligible amount to start with. The market opened in the early 1900s with a few unsuccessful players entering the market. Later in the 2000s, the electric REVA car was introduced and it continued to sell a few units. It was almost a monopolistic market for the REVA car till 2004 when a revised version of the car with 100Km range was introduced. The market turned slowly to monopolistically competitive with the introduction of Toyota Prius Hybrid model followed by Camry Hybrid in the year 2013. Hybrid and electric buses were introduced by many states and permissions granted for electric bikes and rickshaws. Also, almost half a dozen electric two-wheeler manufacturers started output in recent years increasing to the stock of EVs in India to increase to an estimated 100,000 in the year 2016.

With the emerging market for electric vehicles in India, picked up by the year 2010, when the first subsidy of the government was introduced. But a major change in consumer behavior was observed when the cash subsidy expired by early 2012. The sales of EVs dropped by almost 75% since April 2012. The sales drop was due to the cancellation of footfall orders, as the customers found that the subsidy was no longer available. This caused adverse effects to EV industry in India during this period. The government in the meanwhile announced the plan for a revised subsidy scheme which would eventually become available only by early 2014. This downturn in sales forced some of the manufacturers like ‘Society Manufacturers of Electric Vehicles’, who reported zero sales for 2 months immediately after the withdrawal of the subsidy, to render their business unviable and exit the market. Around 20% of dealer closed business on EVs. This also impacted the job market, with the skilled workforce developed over the years quickly migrated to other trades.

But after the hard years of 2012-2013 for the industry, the government announced revised and more enhanced incentive for the EVs in April 2014, with heavier discounts for indigenous manufacturers. Many of the Indian manufacturers such as ‘Mahindra & Mahindra’ and ‘Tata Motor’ entered the market during this period. The government incentive was very attractive that the EVs were discounted up to 30 – 40% and priced almost the same