By extending the policies offered to on-road electric vehicles, India is well positioned to address emissions from off-road vehicles like tractors

India has achieved notable success in building out its e-mobility sector, with EV sales growing rapidly in the two, three and four wheeler segments and various Indian automakers pivoting to electric focused manufacturing. Riding on the success of this electrification trend, India is now ready to focus on decarbonising heavy duty vehicles like buses, trucks and even tractors. Until recently, the high upfront cost of electric vehicles in this segment made it nearly impossible to attempt a transition. However, with reduction in battery prices and the introduction of supporting policies, studies now show that the total cost of ownership of electrifying these heavy duty vehicles is at par or in some cases even lesser than their diesel counterparts.

Currently, there is very little focus on electrifying off-road vehicles likes tractors used in the agriculture sector. However, their contribution to greenhouse gas emissions and use of diesel merits an immediate need for electrification. As a global leader in agricultural production and a major exporter, India’s agriculture sector is an important source of GDP growth, but is also responsible for the nearly 14% of the country’s carbon emissions. Adopting low carbon strategies is critical for the long term sustainability of this sector, one of which is to electrify on-farm equipment. Tractors used in agriculture are mostly powered by diesel engines, consuming about 7.4% of India’s diesel annually and accounting for 60% of total agricultural fuel usage. This diesel consumption is approximately the same as that used by India’s buses (9.6%), but without being subjected to efficiency standards. Tractors are a growing market in India, and without decarbonisation efforts, may soon become a major source of carbon and PM emissions.

A recent working paper by the International Council on Clean Transportation (ICCT), India highlights the potential of improving the financial viability of electric tractors by extending existing policy support to them. Currently, electric tractors are twice as costly as their diesel counterparts, which is the primary barrier to their adoption. This study compares the total cost of ownership of the only electric tractor model in the country, with its diesel counterpart. It finds that over 10 years, the electric version would cost close to Rs 31.1 lakh to own and operate, while the diesel version would cost Rs 30.2 lakh. This shows that even with a higher purchase cost, electric tractors are only minutely more expensive than diesel ones in the long run.

With appropriate policy support, similar to what is available for road transport, electric tractors could become cost competitive

The study proves that extending the support of existing EV policy to tractors will not only bridge 100% of the cost gap between electric and diesel, but the combined policies and incentives can make the per hour cost of running an electric tractor Rs 380 cheaper than diesel. These policies, which are already offered to road transport, once extended to tractors, will significantly support their adoption in the agriculture sector.

Figure: Impact of potential incentive mechanisms and policy actions in bridging the TCO differential between electric and diesel tractors

  • Upfront purchase incentives beyond EVs: Under the FAME II scheme, India has offered central and state-level incentives to spur the adoption of electric two-wheelers, three-wheelers, and motor vehicles. But no subsidies have been provided for electric tractors or any other off-road equipment. Upfront incentives can reduce the high initial costs of electric equipment and thus, lower the threshold of purchasing clean equipment. The coverage of these incentives should be broad enough to cover all zero-emission off-road equipment, including agricultural equipment and construction equipment. Considering that the FAME policy is intended to subsidize zero-emission technology, subsidy could be applied to tractors with a consistent rule. Similarly, several state EV policies match the central government incentives for electric vehicles. They should extend the same incentives for tractors used in their states. India also offers reduced GST of 5%. If this, along with the 15% discount on motor third-party premium rates of electric vehicles, is offered to electric tractors, it would bring down cost of ownership.
  • Agricultural loans with reduced interest rates : Since the upfront cost associated with the procurement of electric tractors is double that of diesel ones, financing incentives can be helpful in lowering the threshold. Almost 95% of tractors in India were purchased using bank credits. India has provided various agricultural loans to fund farming operations and activities, starting at a 7% annual interest rate and with processing fees ranging from 0% to 4% of the loan amount. With a 7% annual interest rate and 0% processing fees, the upfront cost of electric tractors can be reduced.
  • Leveraging current subsidization of agricultural electricity: A feasible way to finance the transition to electric tractors is to provide incentives for using the equipment. The existing mechanism that offers discounted agricultural electricity can be adopted to promote electric tractors and other electric agriculture equipment. This incentive can be expanded to more states for using electric tractors, with lower electricity tariffs on charging electric tractors and other agricultural equipment. This could impose a minor burden on government finances yet help to close the cost gap between diesel and electric tractors. The incentives associated with usage can further encourage the use of electric equipment. The more electric tractors are in the field, the more savings on fuel costs will be realized compared with diesel tractors, given the recent increase in diesel prices.
  • Deployment of charging facilities : The limited charging infrastructure in India not only increases the unit charging price but also forces electric tractors to rely on residential charging, which requires 10 hours for a full charge. Making more fast-charging stations available and reducing unit prices could significantly lower the fuelling and opportunity costs of electric tractors. The reduced hours spent on charging can further improve the performance of electric tractors and facilitate the transition away from diesel tractors.

This shows that India is primed to accelerate electrification of tractors, with the right policy support which already exists. Not only would this bring down carbon emissions from agriculture, but also position domestic manufacturing to compete with global markets as electrification of agricultural products picks up momentum.