New Delhi: The central government Friday approved a new electric vehicle (EV) policy under which companies setting up EV manufacturing facilities in the country will be allowed limited import of vehicles at a much lower customs duty.
Under the policy, EV makers will need to make a minimum investment of Rs 4,145 crore ($500 million) with no cap on maximum investment. For manufacturers setting up facilities in India within a three-year period, customs duty of 15 percent will be levied on electric vehicles of minimum CIF (cost, insurance and freight) value of $35,000 (about Rs 29 lakh) for a period of five years.
The government otherwise levies 70-100 per cent tax on imported cars, depending on their value.
The policy, which is expected to benefit automakers such as Tesla, Rivian, and Lucid, aims to promote India as a manufacturing destination so that EVs with the latest technology can be manufactured in the country, while also attracting investment from reputed global EV manufacturers, according to a statement by the Ministry of Commerce and Industry.
Notably, Tesla has been in talks with the Indian government for duty concessions and the company’s CEO, Elon Musk, had met PM Narendra Modi in the US in June. Following the meeting, Musk had said Tesla would like to come to India “as soon as humanly possible”.
However, lowering of import duties on luxury EVs such as Tesla was opposed by Indian carmakers, including Maruti Suzuki, Tata Motors and Hyundai.
Under the new policy, companies will get three years for setting up manufacturing facilities in India and to start commercial production of EVs. They will be required to reach 25 percent domestic value addition (DVA) by the third year and 50 percent DVA within five years.
“The duty foregone on the total number of EVs allowed for import would be limited to the investment made or Rs 6,484 crore whichever is lower,” the ministry stated, adding that a maximum of 40,000 EVs at the rate of not more than 8,000 per year would be permitted for import if the investment was of $800 million or more. However, carry-over of unutilised annual import limits would be allowed.
According to Shamsher Dewan, Senior Vice President and Group Head, Corporate Ratings, ICRA, the new policy would help access to global technologies, expand product range, and improve cost competitiveness, all of which would facilitate enhanced EV adoption.
ICRA, a credit rating agency, currently expects about 15 percent of new car sales to be electric by 2030.
“Further, countries that have been front-runners in EV adoption have also developed a local vendor ecosystem. This policy is a step in the right direction and would aid in increasing EV components’ localisation in India, which is currently at 30-40 percent,” he said.
While chassis components that require minimal technology upgradation are manufactured locally and there has been substantial localisation in traction motors, control units, and battery management systems over the years, battery cells, which constitute 35-40 percent of the vehicle cost, are still entirely imported.
“The scheme gives rise to manufacturing opportunities to domestic auto component suppliers. For parts that are already used in internal combustion engines, there could be technological advancements in certain cases. The electric passenger vehicle component market is expected to be at least Rs 50,000 crore in terms of revenue potential for ancillaries,” said Dewan.
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‘Robust EV ecosystem’
According to Saurav Kumar, partner in the law firm INDUSLAW, the initiative is anticipated to benefit new-age automakers like Tesla, Rivian and Lucid, which have been advocating for reduced import duties in exchange for their pledge to the ‘Make in India’ initiative.
Moreover, he added, the new policy takes learnings from previous challenges encountered during FAME-II (Faster Adoption and Manufacturing of Electric Vehicles subsidy scheme introduced in 2019), by establishing transparent localisation standards, thereby offering a more streamlined and transparent process for original equipment manufacturers.
The ministry of commerce has stated that the move will provide Indian consumers with access to latest technology, boost the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to high volume of production, economies of scale and lower cost of production.
It will also reduce imports of crude oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment.
Sunjay Kapur, chairman of components’ manufacturer Sona Comstar and Deputy Chair, Confederation of Indian Industry, Northern Region, noted that with a minimum investment threshold and a clear roadmap for domestic value addition, the new EV policy underscores the government’s commitment to nurturing a robust EV ecosystem.
“By incentivising local manufacturing and fostering healthy competition, this policy will not only accelerate the adoption of EVs but also bolster economic growth by way of reducing our reliance on imported crude oil and mitigating environmental impact, particularly in urban areas,” he said.
(Edited by Nida Fatima Siddiqui)
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