India’s electric tractors are ready but idling


Zero-emission vehicles

This piece was originally published in The Wire.

In northern India, the onset of winter coincides with the start of the air pollution conversation. But there’s one important sector that often gets left out of the discussion: the off-road transport sector, which is mostly agriculture tractors. That can and should change, because the stock of tractors in use is expected to increase significantly with India’s advances in agricultural mechanisation and the segment is ripe for electrification.

The first thing to know is that India is the largest manufacturer of tractors in the world and has been since 2013. More than one million were produced in 2021 and exports soared to 125,000 that year. The biggest buyer is the United States, with about a quarter of the sales.

Transport is one of India’s significant and year-round sources of emissions. Research by the International Council on Clean Transportation (ICCT) estimated that exhaust from on-road vehicles, non-road machinery and ships in India resulted in  around 74,000 premature deaths in 2015.

India took a big step toward reducing emissions from transport with the nationwide transition to cleaner Bharat Stage VI (BS VI) on-road vehicle emission and fuel standards on April 1, 2020. When coupled with the push toward electric vehicles, this is significant. Such initiatives improve public health and will help realise India’s commitment to net-zero by 2070.

Additionally, on October 1, 2022, India implemented BS IV tailpipe standards for agricultural machinery. While this was a great milestone, concerns still exist about the emissions from these machines. The vast majority (~78% based on 2021 market data) of agricultural tractors sold in India are equipped with engines between 19 and 37 kW, which are effectively exempt from BS IV emission standards and are not required to reduce emissions of harmful pollutants until the implementation of BS V, scheduled for approximately 2024. As a result, the emission control technology for most of India’s tractors is still where it was over a decade ago.

In most cases, tractors used in India today are powered by diesel. These consume an average of 7.4% of India’s diesel fuel, approximately the same share as is consumed by buses (9.6%). But buses have moved to BS VI emission norms and there is also a great push to electrify them. In the case of tractors, there are no fuel efficiency standards yet and no incentives being introduced for electrifying them. The ICCT previously estimated that they could emit about 25 kilotonnes of particulate matter and almost 300 kilotonnes of nitrogen oxides as of 2020.

Tractors could be a bottleneck that slows progress toward the goal of net-zero greenhouse gas emissions, but they don’t have to be. India’s manufacturers have moved ahead of policy and released electric tractors, the first in December 2020. Other manufacturers plan to launch electric models soon.

The primary barrier right now is cost. Same as in the on-road vehicle sector, zero-emission tractors cost more to purchase than traditional diesel ones (see Figure 1 below). This could drive away potential consumers even though electric tractors are more cost-effective when in the field, given the subsidised agricultural electricity provided in many states. As support from the government is essential in the early stage of the market, the experience of bridging the cost gap between zero-emission and diesel vehicles could shed some light.

bar chart showing amount of different costs that make up TCO of both electric and diesel tractors

Figure 1. The 10-year total cost of ownership (TCO) of an electric versus a diesel tractor. (* The green gradient shade provides the range of fueling costs when estimated using different agricultural electricity prices.)

ICCT carried out research assessing the impacts of policies that would make electric tractors more cost-competitive in India, and here are three important takeaways.

Include tractors in national schemes – The first phase of the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) scheme was introduced by the Central government in 2015, and the second phase came in 2019. Backed with Rs 1,000 crore, FAME-II plans to support 7,000 electric buses, 500,000 electric three-wheelers, 55,000 electric passenger cars, and one million electric two-wheelers, and it has been extended until March 31, 2024.

The subsidy, defined as Rs 15,000 per kWh of the battery or up to 40% of the vehicle’s total cost, can be applied to the tractor sector and largely reduce the cost gap between electric and diesel versions. Using the existing electric truck model as an example, the showroom price is Rs 5.99 lakh, which is more than twice the diesel version with similar power (Rs 2.85 lakh). The FAME scheme, if it includes electric tractors, could offer up to Rs 2.4 lakh (capped at 40% of the tractor’s base price). This will significantly lift the burden that high purchasing costs place on otherwise interested consumers.

Support from state government is important – To promote electric vehicles, many state-level governments echo the incentives from the central level. For example, states such as Kerala, Tamil Nadu, and Madhya Pradesh offer concessions or a waiver on the road tax, with discounted rates between 50% and 100%. Other states, including Delhi, Gujarat, and Maharashtra Rajasthan, add direct cash incentives on top of the road tax waiver via an approach similar to the one seen in the FAME II; it sets a fixed value per kWh based on battery capacity and a maximum subsidy amount. The per kWh incentive ranges from Rs 2,500 to Rs 10,000, and the subsidy cap ranges from Rs 0.6 lakh to Rs 2.5 lakh. If states create similar incentives for electric tractors, then an additional Rs 1.5 lakh could be offered.

Rationalisation of taxes and levies – Discounted taxes and insurance fees have proven powerful in promoting electric vehicles. In the case of tractors, the goods and services tax (GST) could be lowered from 12% to 5%, and a 15% discount on the motor vehicle insurance premium (third-party) could be applied. As shown in Figure 2, electric tractors can be cost-attractive when the incentives to promote electric vehicles are applied similarly. Extending the existing fiscal incentives from zero-emission motor vehicles to zero-emission tractors and even all zero-emission non-road equipment could be quite beneficial.

waterfall chart shows impact of various incentives, including FAME II subsidies and state-level incentives

Figure 2. Impact of applying zero-emission vehicles’ incentive mechanisms on the 10-year total cost of ownership (TCO) differential between electric and diesel tractors.

The government’s push is urgently needed, as the tractor industry already has advanced technology. Action from the Union government is key, as state-level governments often echo subsidies offered at the central level.

The central-level incentives discussed here would be a great signal for the industry to invest more in zero-emission technology, and including zero-emission tractors in FAME II is essential in supporting India’s path toward net-zero. It also aligns with India’s goal of improving air quality and energy security, and might also boost India’s tractor exports, given that countries like the United States have expressed interest in decarbonising non-road machinery.