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Does India’s EV market growth mark the beginning of the end for petrol pumps?

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India’s electric vehicle market is having a blast this year, EVs accounted for as much as 2% of all new vehicle sales between January and August 2021. Seven states, including Assam and Odisha, have announced EV policies.

While this growing interest in electric mobility bodes well for India, we still have a long way to go to wean our passenger road transport sector off oil. India had around 65,000 fuel retail outlets in FY19. Their number has grown at a compounded annual growth rate (CAGR) of 5% over the last decade to cater to the nation’s rising oil demand.

Top 5 Electric Cars in India of 2020

This trend is unlikely to change in the near future. A study by the Council on Energy, Environment, and Water (CEEW) shows that India’s passenger vehicle and two-wheeler ownership will increase 2.9 times and 2.2 times, respectively, between 2016 and 2030.

If EV sales continue to grow at the current pace to reach a 4% sales share in 2030, oil demand from the passenger road transport sector will still more than double in the same period. This means India will need to add around 80,000 new fuel retail outlets, assuming their throughput and economics remain the same in 2030.

What if India reaches 30% EV Sales by 2030 in line with the Clean Energy Ministerial’s (CEM) [email protected] campaign? It will still need around 60,000 new fuel retail outlets to cater to a nearly two-fold increase in oil demand.

Tier 2 and Tier 3 cities in particular are expected to contribute significantly to oil demand as the motorization levels increase. CEEW’s 2019 pan-India mobility shows that such cities have a higher share of private vehicles due to inadequate public transport systems.

Raise the bar for EV Growth:

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Some research groups project a growth rate that surpasses even the CEM’s target. In this scenario, EVs could account for 80% of two-wheelers and three-wheeler sales, 70% of taxi sales, 40% of bus sales, and 19% of private car sales by 2030.

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Even so, India’s oil demand will increase 1.5 times by 2030. This will add 40,000 new fuel retail outlets in 2026, of which as many as 30,000 will still be needed in 2030.

This means India will need to significantly scale up its EV ambitions to reduce its dependence on oil to power passenger road transport. Targeting an ambitious 67% EV sales share by 2030 can advance the peaking of the sector’s oil demand to 2026.

But achieving this requires aggressive EV policies to capitalize on India’s competitive advantage and iron out barriers to EV uptake.

Firstly, India will need regulatory policies to accelerate the phase-out of the internal combustion engine (ICE)-based vehicles. The world’s leading EV markets, like the US, EU, and China have demonstrated the effectiveness of stringent fuel economy norms and zero-emission vehicle (ZEV) mandates in accelerating demand for EVs.

Electric two-wheelers and three-wheelers are already cost-competitive in the Indian market today and offer a variety of use-cases. It is time for India to take bold measures to accelerate EV adoption in these segments.

Secondly, the vehicle scrappage policy should be made mandatory and linked with schemes and programmes for EV transitions. Incentives must be graded based on the energy efficiency of new vehicles purchased against certificates of deposit.

Offering users who opt for fuel-efficient vehicles and EVs better incentives could accelerate the adoption of energy-efficient vehicles in the fleet, thus reducing the demand for oil.

Top 5 Electric Cars in India of 2020

Third, the government should diversify revenue sources to compensate for reduced petrol and diesel sales. CEEW’s research shows that a 30% EV sales share in 2030 will lead to annual losses of almost INR 1.1 lakh crore in central and state government revenues.

Policymakers should explore alternative revenue sources through schemes such as feebates and congestion pricing. Ambitious policies and a carefully drafted EV roadmap are both paramount for ensuring the Indian passenger transport sector’s energy security and managing trade-offs resulting from the transition.

To achieve sustainable economic growth and the vision of an Aatmanirbhar Bharat, the time to act on these policies is now.

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