New Delhi, July 25, 2019 – Until last month, Indian drivers were paying a tiny bit less to fill their vehicles with petrol and diesel thanks to a government decision that was reversed in the recent Union Budget. While the INR 2.5 (USD .03) per litre may not have mattered too much to consumers, it had big consequences in terms of government revenue.  

India’s subsidies to petrol and diesel between October 2018 and June 2019 amounted to almost three times the three-year government budget for electric vehicle (EV) support. This is according to a new study by the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD).

Despite the commitment to reduce air pollution and achieve at least 30 per cent of new vehicle sales being electric by 2030, the Indian government subsidized conventional transport by INR 26,957 crore over the last nine months, far outpacing spending on its flagship EV program, the Faster Adoption and Manufacturing of Electric Vehicles (FAME 2), of INR 10,000 crore over three years.

“The cuts to fuel excise and oil company margins announced late last year resulted in a major drop in government revenue. The money would have been better spent supporting India’s ambitious agenda to adopt EVs and renewable energy rather than perpetuating dependence on petrol and diesel,” says Tara Laan, IISD Associate.

India is heavily reliant on fossil fuels in the transport sector, which contributes to greenhouse gas emissions and alarming levels of air pollution. Transitioning to EVs could reduce the level of toxic air pollutants relative to conventional vehicles and shift the source of these emissions away from cities.

“With the decision to reinstate the fuel excise and further lower GST on EVs, the government is back on the right track,“ says Purva Jain, GSI India Program Consultant and co-author of the report. “It should also allocate some of the fuel excise and Road and Infrastructure Cess to boost support to EVs.” Jain says this would help reduce dependence on imported crude oil and improve air quality. “Price cuts for petrol and diesel have the opposite effect, sending motorists a price signal to continue using fuel and, more importantly, a message that the government intends to intervene when international oil prices escalate.” 

A main recommendation of the study is to reallocate subsidies for oil and fuel to programs that support India’s clean energy transition, including implementing additional policies that would support the EV market.

“We recommend that government implements pricing policies that promote EV charging during times when renewable electricity is being generated,” says Laan. “In addition, electricity distribution companies need to be supported in strengthening the grid to accommodate a growing supply of renewable sources and growing demand from EVs.”

Full report is available here.

For more information, please contact:
Paulina Mlynarska, pmlynarska@iisd.org
Tara Laan, tara.laan@iisd.net

About Global Subsidies Initiative (GSI)

The IISD Global Subsidies Initiative (GSI) supports international processes, national governments and civil society organizations to align subsidies with sustainable development.

For more information, please contact: Paulina Mlynarska, pmlynarska@iisd.org

About the International Institute for Sustainable Development

The International Institute for Sustainable Development (IISD) is an independent think tank that delivers the knowledge to act. Our mission is to promote human development and environmental sustainability. Our big-picture view allows us to address the root causes of some of the greatest challenges facing our planet today—ecological destruction, social exclusion, unfair laws and economic and social rules, a changing climate. With offices in Winnipeg, Geneva, Ottawa, Toronto, our work impacts lives in nearly 100 countries.

For more information, please contact: media@iisd.org or +1 (204) 958 7700 ext. 740