India plans $4.6 billion in incentives for battery makers in electric vehicle push

Prime Minister Narendra Modi

(Reuters) – India plans to offer $4.6 billion in incentives to companies setting up advanced battery manufacturing facilities as it seeks to promote the use of electric vehicles and cut down its dependence on oil, according to a government proposal seen by Reuters.

A proposal drafted by NITI Aayog, a federal think tank chaired by Prime Minister Narendra Modi, said India could slash its oil import bills by as much as $40 billion by 2030 if electric vehicles were widely adopted.

The proposal is likely to be reviewed by Modi’s cabinet in the coming weeks, said a senior government official, who was not authorised to comment on the matter and declined to be identified. NITI Aayog and the Indian government did not respond to requests for comment.

The think tank recommended incentives of $4.6 billion by 2030 for companies manufacturing advanced batteries, starting with cash and infrastructure incentives of 9 billion rupees ($122 million) in the next financial year which would then be ratcheted up annually.

“Currently, the battery energy storage industry is at a very nascent stage in India with investors being a little apprehensive to invest in a sunrise industry,” the proposal said.

India plans to retain its import tax rate of 5% for certain types of batteries, including batteries for electric vehicles, until 2022, but will increase it to 15% thereafter to promote local manufacturing, the document said.

Though keen to reduce its oil dependence and cut down on pollution, India’s efforts to promote electric vehicles have been stymied by a lack of investment in manufacturing and infrastructure such as charging stations. Just 3,400 electric cars were sold in the world’s second-most populous nation during the last business year, compared to sales of 1.7 million conventional passenger cars.

The policy could benefit battery makers such as South Korea’s LG Chem 051910.KS and Japan’s Panasonic Corp 6752.T as well as automakers which have started building EVs in India such as Tata Motors TAMO.NS and Mahindra & Mahindra MAHM.NS.

While China accounts for 80% of the world’s lithium-ion cell production, India has introduced stricter investment rules for Chinese companies. It has also slowed down the approval processs for some proposals after a deadly border clash between the two countries in June.

The draft proposal said annual domestic demand for battery storage and market size – currently less than 50 gigawatt hours and worth just over to $2 billion – could grow to 230 gigawatt hours and more than $14 billion in ten years time.

It did not offer an estimate of how many electric cars it expected to be on the road by 2030.

The proposal estimates it would cost firms some $6 billion over five years to set up manufacturing facilities with the support of government subsidies.

NITI Aayog has been the driver of several key India government policies including the planned privatizations of a swathe of state-owned companies.

Reporting by Neha Arora and Aftab Ahmed; Additional reporting by Aditi Shah; Editing by Aditya Kalra and Edwina Gibbs

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