India\'s new green car policy may benefit China

Given the recent contentious development in Sino-Indian bilateral relations, it would think it to be most unlikely for India to do things that would be remotely beneficial to China. But that is probably what is going to happen in the automobile industry where a radical policy shift that New Delhi has announced earlier in May is likely to end up supporting Beijing's move in the same direction. This is happening not by coordination, but is mere coincidental.
A report from New Delhi suggests, India's most influential think tank Niti Aayog, headed by Prime Minister Narendra Modi, has focused its decision to electrify all vehicles in the country by 2032. This surprising policy blueprint was made public on May 12, recommending lower interest rates on electric vehicles to interest its promoters. By any standard this is a radically ambitious programme.
Now what makes it really interesting is that British news agency Reuters reported from Singapore saying, China too, has released its own road map in April saying it wants "alternative" fuel vehicles to account for 'at least' one-fifth of its projected 35 million annual vehicle sales by 2025. It means China is aiming at producing and selling at least seven million non-fossil fuel vehicles each year in eight years' time.
This is a major development for the fossil fuel producers because fossil fuel consumption by vehicles worldwide accounts for a substantial quantity of the product and they have to be careful in adjusting their fuel production and marketing facilities in view of such fast changes in the use of non-fossil fuel. It may be noted that China and India are now world's first and third largest consumers of fossil fuel oil respectively.
Meanwhile, Niti Aayog's latest report has buoyed China's biggest auto maker SAIC which has established a local unit in India earlier this year in the name of MG Motors and is reportedly finalising plans to buy a car making plant in western India. Yet another company called BYD, backed by billionaire investor Warren Buffet, already building electric buses in India, and its rival Chongqing Chang are expected to enter the Indian market by 2020.
NOT CHINA & INDIA ALONE: Globally, the issue is becoming quite big. International Energy Agency (IAE) has reckoned that changes are so big that it plans to revise analysis of electric vehicles trends and oil demand. Another report quoting IEA spokesman said: "The choices made by China and India are obviously most relevant for the possible future peak in passenger car oil demand."
China and India are not the only players in this game. Japan and South Korea are the world's major automobile makers and are already selling significant volume of hybrid vehicle. Hybrid vehicles are those that use both gasoline and electricity; and mild hybrid uses less of electricity. Besides, fuel efficiency - car makers are single-mindedly striving to cut gasoline consumption for standards vehicles - is also adding to this development.
German car maker Damler is not willing to be bypassed with folded hands. The company's vice president for strategy and production planning Wilco Stark announced in May: "We will make a clear move to go for electric car. It's driven by legislator, so electric cars are coming, it's not a niche market anymore." Damler's overall car sales are likely to rise by 15 to 20 per cent by 2025 and at least another 10 percent of sales are coming from hybrid vehicles, he says.
India's Tata Motors is producing electric buses and working on to produce electric and hybrid cars. However, it says that for full electric vehicles, the economic gap remains quite big and charging infrastructure needs does not exist.
Marruti, India's parent company, Suzuki Morors along with Toshiba and Denso are now planning to invest 20 billion yen ($180 million) to set up a lithium ion battery plant in India to support Maruti's plan for building more hybrid vehicles.
SHIFTING GEAR AND INFRASTRUCTURE ISSUE: In addition to low tax and low interest rates, India is planning to impose higher taxes on hybrid vehicles compared to electric ones under the new tax regime to be effective from July 01 next. Market analysers, however, have stated that this will have adverse impact on established large car makers like Maruti Suzuki and Toyota Motors.
Policy announced in 2015 by India supported hybrid and electric technology, but it is now seemingly shifting away from that policy. The think tank Niti Aayog's report is yet to be formally adopted by the Indian government, but officials say with Prime Minister Modi behind the move, it is most likely to form the basis of India's new green car policy.
However, policy focus on electric vehicles is likely to include plug-in hybrids. But conventional hybrid models - Toyota's Camry sedan, Honda Motor's Accord sedan and so-called mild hybrid built by Maruti Suzuki - seems to have been overlooked by the policy planners, insiders say.
Reuters in a short and crispy report from New Delhi said: "If so, India would be following similar moves by China which has been aggressively pushing clean vehicle technology. But emulating China's success could be tough."
Indian auto industry executives say India is expected to be the world's third largest passenger car market following China and the US within the next decade. But they regret that policy shift may delay investment in the auto industry in India.
According to industry sources, Mahindra and Mahindra is the only electric car maker in India and it is struggling to improve sales because of low buyer interest and insufficient infrastructure. The company's Managing Director Pawan Goenka, according to reports, said that his company is working with the government and other private players to set up charging stations in the country.
Electric cars in India are expensive mainly because of high battery cost. Besides, lack of adequate charging stations and other infrastructure may discourage car makers to make necessary investment in the technology.
FUEL CFONSUMPTION COTROVERSY: Reaching the likely date of peaking fossil fuel consumption has prompted different agencies to offer different estimates. For example, International Energy Agency's (IEA) report was last updated in November 2016, which says oil demand from vehicles to rise until 2040. However, credit agency Moody's says it differently: "Fast pace of technological development makes accurate predictions difficult." But it warned that direct effect from falling oil demand, including gasoline "could be material by 2020s."
IEA, however, qualified its forecast by saying that consumption will continue to rise after 2040 as oil used for road freight, aviation and chemical manufacturing will rise. FGE consultants Cuneyt Kozokoglu succinctly said: "The peak oil demand talk right now is very similar to the 'peak oil supply talk' 10-15 years ago." He says, growth will continue for another 25 years, after which the consultancy expected a long plateau rather than a steep drop.
On India, he says 270 million people lacked access to electricity. He asked: "How will this entire electrification fits into this?"
Available statistics suggest currently the total number of electric and hybrid cars account for about two percent of the global car fleet. China, incidentally, has become the largest market of the world's alternative fuel vehicles in 2016 and is using 40 percent of all world's such vehicle. China now sells over two million cars a month (24 million annually) and has projected to sell 35 million vehicles by 2025 of which seven million would be green cars.
Industry forecasters, however, have pointed out that more than a third of the world's oil refineries are located in Asia - up from only 18 per cent in 1990. For refiners, the growth of vehicles run on electric and other alternative fuels is a wake-up call. They mostly rely of gasoline consumption for revenue.
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