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FDI in Transport, EV sales and Governance in India: Probing Co-integration Through VECM Model

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Abstract

India’s transport sector is constantly evolving, owing to rapid urbanization, increased pollution, and burgeoning population. In India, transportation is one of the major contributors of air pollution. For this, Electric vehicles (EVs) might serve the purpose of mitigating air pollution by advancing decarbonization of transportation. Nevertheless, green mobility requires enormous investment, as government expenditure is often inadequate, and stimulating private finance is challenging. Traditionally, Official Development Assistance (ODA) was viable financing option, but recently, huge influx of Foreign Direct Investment (FDI) in transport also needs consideration. However, in India, the proliferation of EV market and expanding FDI inflows in transport, has remained underexplored. In this regard, firstly, our paper offers a summarized review of the literatures, from International Energy Agency (IEA), World Bank, NITI Aayog and McKinsey & Company, for EVs, FDI and related government policies. Additionally, we present a conceptual framework, illustrating the interconnection among them for sustainable transport use. Finally, the paper empirically investigates the inter-relationship among EVs sales, FDI inflows and governance (tax subsidies as proxy) through VECM model. The empirical findings revealed a positive and significant impact of government policies on EV sales, in both long run and short run. For FDI inflows, an insignificant relationship in short run, and significant impact in long run for EVs is established. Hence, the present study gives a new insight to policymakers, to frame long term policies for inducing enhanced FDI inflows for infrastructure, curate flexible tax policies and revamp energy infrastructure to promote electric vehicles adoption in India.

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Fig. 1

Source: DIPP (2021) and OECD, Geobook (2021); Note: Series 1-FDI inflows; Series 2-ODA inflows

Fig. 2

Source: Authors’ Own construct, Adapted from NITI Aayog and BCG, 2018 report titled “Transforming India’s Mobility: A perspective”

Fig. 3

Source: Authors’ own construct

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Data availability

The data supporting the empirical findings of the study are publicaly available and obtained from WDI indicators of World Bank, IEA (Interntional Energy Agency) and FDI statistics from DPIIT (Department for Promotion of Industry and Internal Trade), Ministry of Commerce and Industry, Governement of India. The data can be accessed here: https://databank.worldbank.org/source/world-development-indicators, https://dpiit.gov.in/publications/fdi-statistics, https://www.iea.org/energy-system/transport/electric-vehicles.

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Funding

The authors would like to acknowledge the funding received for this work from Ministry of Education, Government of India.

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  1. Department of Humanities and Social Sciences, Indian Institute of Technology Patna, Patna, Bihar, 801103, India

    Aditi & Nalin Bharti

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The Authors Confirm that their contribution to the paper as follows: Study Conceptualization Discussion, Design: All authors. Formal Analysis and Methodology: Aditi; Writing—original draft preparation: Aditi; Writing: Review and Editing: Nalin Bharti; Supervision: Nalin Bharti. All the authors have reviewed and approved the final version of the manuscript submitted.

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Correspondence to Nalin Bharti.

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Aditi, Bharti, N. FDI in Transport, EV sales and Governance in India: Probing Co-integration Through VECM Model. Transp. in Dev. Econ. 10, 27 (2024). https://doi.org/10.1007/s40890-024-00215-z

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