By Ashish Joshi
NITI Aayog, in one of its recent reports titled ‘Valuing Society First’, has explored the possibility for the implementation of a feebate policy to drive vehicle efficiency in India. Under this policy, fuel inefficient vehicles or vehicles with a poor emission standard will be subjected to a surcharge fee while the efficient vehicles will receive a rebate. A feebate policy helps establish a market standard and is often implemented with a revenue neutrality, hence, it is put in high regards by policymakers around the world. Variations of this policy have already been implemented across countries like the Netherlands, France, Denmark, Austria, etc.
Despite a low per capita fleet, India is one of the biggest and fastest growing automobile markets in the world. Over 3 million cars were sold in India in the fiscal year 2016-17. In addition to this, India also has a huge resell market for automobiles. Given the economic diversity of the country, the policy, if implemented in a rash manner will have a huge negative impact on country’s economy. To avoid this, NITI Aayog has come with a three-phase design to implement the feebate policy across the country.
Phase 1: Program Design
This includes the creation of a ‘Professional Body’ to ‘Design, Implement and Administer’ the program. The body will design the entire policy by mapping all the key stakeholders like automobile dealers, government, dependent businesses among others.
Phase 2: Implementation
Implementation of a feebate can be enacted at either the point of vehicle service or at the point of vehicle sale after monitoring carbon emissions. Setting up an infrastructure for monitoring vehicles remains the key. Once implemented, the subsequent transactions can be carried out from Aadhar linked bank accounts to maintain transparency and efficiency in the entire process.
Phase 3: Evolution
This involves expansion of the policy to additional vehicles and the used vehicle market space.
Key Challenges in the Indian market space
India’s current vehicle policy and automobile landscape are already very complex. Any rash or far-fetched implementation will increase the administrative burden on the automobile industry. It is very important that a new policy fits well in the existing policy setup and the government’s long-term vision of electrifying private fleet by 2030. Further, automobile manufacturers have very long design cycle times, thus, any such policy will force the industries to invest huge sums of money to adjust their product offerings accordingly, there is also a huge risk of a sudden fall in demand which will adversely affect the growth in automobile industry and may result in massive employee layoffs.
The policy despite being revenue neutral can be perceived as another form of taxation, which will grant the policy a highly critical reception among the people of the country. India’s huge resell market offers another challenge. Only 19 percent of reselling transactions occur in an organized way and thus implementing the policy over this space is a huge challenge as the point of sale implementation becomes almost ineffective. Further, getting the already deployed fleet under supervision is a mammoth challenge in itself.
The bigger picture
India has a unique opportunity to implement a feebate policy that can drive vehicle efficiency in the country. Indian consumer base is extremely price-sensitive and is expected to respond to any additional surcharges. If India successfully implements a revenue-neutral feebate policy, she will be able to cut down on its carbon emissions significantly with minimal spending of public funds.
Government of India’s ambitious Electric Vehicle campaign
In 2012, Department of Heavy Industry adopted a policy to promote electric mobility across the country. In 2013, India launched the ‘National Mission on Electric Mobility Mission Plan 2020’, to achieve at least 5-7 million hybrid or electric vehicles running on Indian roads by the year 2020. The government ambitiously targets to electrify the entire private owned fleet by the year 2030. An efficient feebate policy can catalyze the campaign. This transition from vehicles running on a combustion based engine to the engines running on electricity presents India with a huge business opportunity, with a keen focus on manufacturing, India can drive a global adoption of electric and hybrid vehicles. The domestic battery market for electric and hybrid vehicles is estimated to be of around $300 billion. If capitalized, it can be a flagship industry under government’s Make In India initiative. This will not only cut down India’s oil imports by almost 60 percent, strengthening the rupee, but also bring down the carbon emissions, improving the public health.
The report also discusses a set of principles that India needs to keep in mind to formulate an effective and successful policy. Given India’s diverse automobile space, India needs to ensure that policy formulation is inclusive of all the stakeholders. The idea must not be to force novel changes but to catalyze the adoption of efficiency standards.
The biggest challenge in the process is to keep it revenue neutral. It is where most of the previous implementations of feebate policies have failed. The policy must be simple and reasonable and must not offer an unfair advantage to certain players unless they offer a significantly better product. Automobile manufacturers often take 2-5 years make substantial changes in their products, thus, the policy must also account for a transition period to avoid the industry with an undue stress for survival.
A multi-pronged approach
The launch of a thoughtfully designed and a carefully implemented feebate policy will help India reach its goal of clean mobility and will also bolster the economy and public health. India has a great opportunity to improve a revenue-neutral feebate policy on a scale never implemented before. If India succeeds, it will be an example for the entire world. In time, this policy will help catalyze the shift from combustion engines to electric engines which also presents a huge business opportunity for the entrepreneurs and businessmen of the country. All India needs to do is act quick and smart to make the most of this unique opportunity that knocks on her doors.
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