Paving the way for the entry of more global automakers in the country, the centre today announced a much-anticipated electric vehicle policy that significantly cuts the import duty on electric cars to 15% from the current 70% for five years. This lower import duty is applicable only if companies commit to a minimum investment of Rs 4,150 crore, or US$ 500 million, for manufacturing in India.
“Under this scheme, EV passenger cars (e-4W) can initially be imported with a minimum CIF value of USD 35,000, at a duty rate of 15% for a period of 5 years from the date of issuance of approval letter by MHI (Ministry of Heavy Industries),” according to a gazette notification issued today.
As per the new policy, companies will have to commit a minimum investment of Rs 4,150 crore for setting up manufacturing facilities within three years and start commercial production. There is also a clause on domestic value addition – the manufacturers will have to achieve a 30% domestic value addition within three years of production and further increase it to 50% by the fifth year.
There are certain thresholds on the import of electric vehicles at the lower tax. The companies will be allowed to import a maximum of 40,000 electric vehicles at a rate of 8,000 cars per year at the 15% import tax. “The duty foregone on the total number of electric vehicles allowed for import would be limited to the investment made or Rs 6,484 crore (equal to incentive under PLI scheme) whichever is lower,” the government said.
Meanwhile, the companies will have to back their investment commitment with a bank guarantee in lieu of the custom duty forgone. The bank guarantee will be invoked if the company fails to make the minimum investment and domestic value addition criteria. The companies are also not allowed to dilute their shareholding during the tenure of the scheme.
Higher import tax has been one of the major reasons that restricted some global car makers such as Tesla from starting operations in India. Talks between Tesla and the Indian government stalled last year after the government asked the automaker to commit to domestic manufacturing before reducing tariffs.
“This will provide Indian consumers with access to the 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, lower cost of production, reduce imports of crude Oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment,” the government said.
India is currently the world’s third-largest passenger vehicle market in the world. With electric vehicle adoption picking up, the government expects the country to be the largest electric vehicle market in the world by the end of this decade. While addressing the industry during the first edition of Bharat Mobility, Prime Minister Narendra Modi said that India’s mobility sector is at the onset of a golden period with the economy expanding fast on its journey to a developed country status by 2047.
The new policy aligns with the government’s ambition to make India a global mobility hub as it would open the market for more global manufacturers and suppliers. “This will open up the Indian automotive market to new carmakers, suppliers and technologies. The overall EV ecosystem is expected to receive a significant boost with new entrants. One or two domestic carmakers cannot take bear the burden of developing a complete electric vehicle ecosystem,” said Gaurav Vangaal, associate director at S&P Global Mobility for Light Vehicle Production Forecasting.
ACMA President Shradha Suri Marwah believes the policy not only aims to attract global electric vehicle majors to invest in India but also emphasizes significant domestic value-addition criteria, ensuring the creation of a robust supply-side ecosystem.
“Countries that have been front-runners in electric vehicle 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%,” ICRA’s Senior Vice President and Group Head – Corporate Ratings Shamsher Dewan said.
However, lower duty on the import of electric cars could increase the competition for domestic automakers who have been looking at the mid-premium space for higher margins in the electric vehicle portfolio. Tata Motors and Mahindra & Mahindra had reportedly raised concerns with the government on plans for lower import tax. The automakers are said to have opposed the government’s plans to lower the tax, citing that its investors made decisions assuming the tax regime favoring locals would remain unchanged.
“Marginal sentiment negative for domestic OEMs as the entry of global companies would increase competitive intensity in the premium segment. Sentiment positive for domestic ancillaries. Entry of global OEMs with 50% localization, would open business opportunities for ancillaries in EV parts/ structural parts,” said Nuvama Institutional Equities’ Director Raghunandhan NL.
“The recently announced EV policy for new entrants reinforces the Make in India momentum, with requirements of bank guarantees, minimum investment commitment and local value addition. This will help accelerate the EV ecosystem in India. Our Born Electric SUVs are on track to be launched in Jan 2025 with cutting edge technology. Our products will speak for themselves,” said a Mahindra spokesperson.