Niti Aayog proposes stiffer taxes, stringent emission norms for fossil fuel vehicles to promote EVs

Mint

8 hours ago

New Delhi: Nudges are not enough anymore. With India's electric vehicle (EV) adoption lagging behind global peers, Niti Aayog is pushing for a sharper pivot by proposing mandates, penalties, and steeper costs for fossil fuel vehicles to make the EV shift inevitable. The proposals mark a strategic shift from a decade of subsidies and incentives to a model that actively disincentivises petrol and diesel use.
In a policy report released Monday, the government think tank called for higher registration fees, tougher emission norms and increased input taxes on internal combustion engine vehicles.
Alongside city-level EV saturation pilots and targeted financing for electric buses and trucks, the push comes amid concerns over supply chain vulnerabilities, especially after China's export curbs on rare earth magnets.
Niti Aayog's roadmap aims to speed up India's path to net-zero by 2070 and close the gap with EV leaders such as China and the US.
The 'Unlocking a $200 Billion Opportunity: Electric Vehicles in India" report has proposed stringent vehicle emission standards, mandates for share of clean mobility in a fleet, higher registration fees and taxes on fossil fuel vehicles.The call for stringent emission standards come amid the industry tiff on the implementation of the Corporate Average Fuel Efficiency (CAFE) norms for passenger cars from April 2027 over whether relaxations should be given to smaller cars.
The Niti Aayog's suggestions also include focus on financing for electric buses and trucks and scaling up research efforts to lower battery costs, according to the report. It proposes segregating the cost of the EV battery from that of the rest of the vehicle, allowing consumers to only pay for the vehicle upfront and reducing the capital cost.Niti Aayog's suggestions came after its consultations showed India was struggling with challenges such as financing of vehicles, inadequate charging facilities and a general lack of awareness related to EVs.The report also laid down a roadmap for central government ministries, asking the ministries of heavy industries and road transport and highways to design a more stringent plan to disincentivize the use of fossil fuel vehicleswithin one year. Niti Aayog also suggested the power ministry to expand CAFE norms to a wider segment of vehicles.The think tank said 98% of India's vehicle fleet comprises either small vehicles—two-wheelers or small cars—or public transport or goods vehicles. Only 2% are larger cars costing more than ₹10 lakh, the report noted.In its report, the think tank suggested focusing policy towards a specific subset of vehicles, such as two-wheelers that make for three-fourth of India's road transport, as well as focusing on saturation of EVs in a specific geographical area, instead of broad and even distribution.
Niti Aayog asked the ministries of heavy industries, road transport, and the housing and urban affairs to start a pilot programme for five cities for saturating EV adoption within a year, and later scale it to 100 cities in the next 5-10 years.
Policy shift
The mandates, disincentives and recommendations mark a shift in EV policy frameworks after more than a decade of incentives for manufacturing and purchasing of EVs. These incentives included tax reduction, consumer subsidies, and production-linked incentives.
The Union government also reduced the goods and services tax (GST) on EVs to 5% against a much higher levy of 28% on fossil fuel vehicles.India had kicked off its Faster Adoption and Manufacturing of Electric (& Hybrid) vehicles (FAME) scheme in FY15, offering discounts, or subsidies, on purchase of EVs. This scheme had two iterations of five years each, marking a decade of incentivizing consumers to shift to EVs by the end of FY24. The third iteration, now named the PM E-drive scheme, has a run time of two years from the beginning of FY25 to the end of FY26.In 2021, the government also announced the ₹25,938-crore production-linked incentive scheme for automobiles and automotive components to incentivize manufacturers to shift towards zero-emission vehicles.The Niti Aayog also launched an EV index of states on Monday to boost competitive federalism, mapping the preparedness of each state to adopt electric mobility. Delhi, Maharashtra and Chandigarh were frontrunners in the index in 2024.
Global comparison
India's EV adoption has been considerable, but it has not been able to beat other major economies such as the US and China, Niti Aayog officials said.'While EV sales have grown from 50,000 units in 2016 to 2.08 million in 2024, the progress has been relatively slower compared to global trends, where sales rose from 918,000 to 18.78 million during the same period," Niti Aayog said in a press statement.Niti Aayog distinguished fellow O.P. Agarwal said that while India's adoption in electric three-wheelers is better than that of China, it lags behind in other vehicle segments. 'There has been some progress in electric buses and electric cars, but electric trucks have yet to pick up," he said.The report said China's sales of electric trucks in the 'above 3.5 tons' category was around 76,000, while India's was about 280, citing data from the International Energy Agency and the central government's Vahan registry of vehicles. China's penetration of these trucks was 3%, while that of India was 0.07%, the report said.Niti Aayog chief executive officer B.V.R. Subrahmanyam andmember Rajiv Gauba both said the adoption of electric mobility is crucial to achieve the goal of net-zero carbon emissions by 2070.'The Department of Financial Services (DFS) should work with banks to provide longer loans, that is, loans of longer durations, for the purchase of EVs, especially trucks," said Gauba, former cabinet secretary.Secretary of the ministry of heavy industries Kamran Rizvi, who heads the nodal ministry for the FAME, PM E-drive and PLI-Auto schemes, said the schemes incentivising electric mobility had pushed vehicle makers to localize their supply chains. '107 vehicles have secured the DVA (domestic value addition under the PLI-Auto scheme under the PLI-Auto scheme) now," he said.
Under the PLI-Auto scheme, manufacturers have to ensure that 50% of the components used to build a zero-emission vehicle are sourced locally.