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

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.