The soaring fuel prices are triggering welcome ‘green’ policy responses to encourage the use of non-polluting electric vehicles. The state government of Delhi has provided a 15 per cent subsidy to battery-driven vehicles, besides exemption from local taxes. Not surprisingly, manufacturers of such vehicles are ramping up production capacities in anticipation of burgeoning demand. There is also scope for similar incentives for encouraging hybrids and greater fuel efficiencies in small car production. Small cars less than 4 metres in length enjoy tax breaks and account for 70 per cent of the million plus car sales. Providing incentives to improve their mileage is also very much in order.
While battery-driven vehicles and hybrids have been around for a while, their prohibitive price tag inhibits demand. For instance, the base price of an existing battery-driven Reva model is three times that of the Nano, the world’s cheapest car, and 50 per cent more than the Maruti 800, the entry level offering of the country’s largest car-maker. But with its low running costs and the state government’s subsidy, the math favours greater use of such vehicles when compared to competing petrol models. Hybrids, however, are much more costly and in the reach of only the affluent. Toyota’s best-selling hybrid, Prius, that uses both a petrol and electric motor, comes at a hefty tag of Rs 18-22 lakh.
Clearly, policy responses to encourage fuel efficiencies in small cars are more feasible. India is already emerging as a global hub for such vehicles and there is a window of opportunity now opening up for fuel-efficient, subcompact cars. With retail gas prices zooming upwards, Americans are buying hybrids or smaller, more fuel- efficient cars. During April, one in five US sales was, in fact, of a fuel-efficient compact or subcompact car as against one in eight a decade ago. There is also bound to be greater demand for such eco-friendly vehicles in Europe. Besides catering to the domestic requirement for economising on fuel consumption, India can revv up to meet some of this increasing global demand.