1, December, 2023
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Addressing Transport Poverty in the Electric Vehicle Sector: The Need for Government Initiatives

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The electric vehicle (EV) revolution is underway, with India witnessing a substantial increase in EV sales, especially in the two-wheeler and three-wheeler categories. While this shift towards sustainable transportation is commendable, there is an impending issue known as “transport poverty” that needs attention. Transport poverty refers to the inability of individuals to access affordable transportation options. In the context of EVs, it primarily affects private vehicle owners, such as college students and those in peri-urban areas, who use their vehicles for shorter distances.

The root of this problem lies in the cost-economics of EVs when compared to traditional Internal Combustion Engine (ICE) vehicles. While the operating cost of an EV is significantly lower than that of an ICE vehicle, the upfront cost of purchasing an EV is 1.5-2 times higher. This economic disparity is particularly challenging for private vehicle owners, where cost-effective choices are essential.

Technological advancements are gradually reducing the cost of EVs, but achieving price parity with ICE vehicles, especially when government subsidies are not considered, remains a distant goal. Additionally, higher interest rates on loans for EVs further exacerbate the affordability issue. EV buyers often face interest rates exceeding 20%, almost double that of ICE vehicles.

This discrepancy in upfront costs and elevated interest rates results in substantially higher Equated Monthly Installments (EMIs), making EV ownership financially burdensome for a significant portion of the population. As the entire vehicular fleet transitions to EVs, the persisting cost disparity may lead to transport poverty for millions.

The Solution:

To address this issue, the Indian government can play a crucial role. Similar to the establishment of specialized financing agencies like SIDBI and NABARD, a dedicated EV-focused financing institution should be created. The government can provide initial capital, and additional funding can be sourced from global climate financing facilities, such as the Global Environment Facility.

This EV-focused financing institution can offer a refinancing facility to existing Non-Banking Finance Companies (NBFCs) and microfinance institutions with a strong presence in the automobile financing sector. Backed by the government, this institution would serve as an initial catalyst to jumpstart the EV financing market. Subsequently, private financing companies would enter the segment, driven by market forces and the potential for growth.

EVs represent a proven and sustainable solution for decarbonizing the transportation sector and achieving net-zero emissions goals. However, it is essential to ensure that EVs are accessible and affordable for all. A government-backed EV financing institution would expedite the transition of vehicle fleets to EVs and alleviate the concerns of transport poverty among the masses.

Addressing transport poverty in the EV sector is vital to promote sustainable transportation and ensure that the benefits of electric mobility reach everyone. The government’s active involvement in establishing an EV-focused financing institution is a necessary step towards achieving this goal.

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