The Government of India currently has an 100% import duty on cars priced above $40,000, and now it’s being reported that Government is considering to reduce the tax to around 15%.
The Make in India initiative has had a positive impact on various sectors, including electronics manufacturing, pharmaceuticals, renewable energy, defense manufacturing, space, food processing, and the automotive and automobile components manufacturing industry. However, when it comes to specific segments such as electric vehicles (EVs), the Indian government is considering a more flexible approach.
Tesla, in particular, has shown interest in the Indian EV market for several years. However, high import duties have been a significant obstacle to their plans in India. Tesla’s primary condition for entering the Indian market was to be able to test it before committing to setting up a manufacturing unit in the country. They requested the removal of import duties, but this was not accepted by the government, which is committed to the Make in India initiative.
Recent reports suggest that the Indian government is working on a more inclusive electric vehicle policy. Under this new policy, import duties on high-end electric cars may be reduced to just 15%. This reduction will make it more feasible for automakers like Tesla to import fully-built (CBU) EVs into India. This change will not only benefit Tesla but also other luxury automakers such as BMW, Mercedes, Audi, and Volvo, leading to a significant decrease in the prices of imported luxury electric vehicles.
However, the reduction in import taxes for premium EVs will come with specific conditions to support the Make in India initiative. These conditions will include a commitment to local manufacturing in the initial stages, gradual increases in the quantum of local manufacturing, and the sourcing of components locally. Car manufacturers will be required to provide bank guarantees to cover any defaults in their commitments, which will also help create an ecosystem for local suppliers. In the initial two years, local sourcing is expected to be around 20%, increasing to approximately 40% by the fourth year.
It’s important to note that the new electric vehicle policy is still in the draft stage, and the specific numbers and conditions may change in the final version. While lowering taxes for high-end EVs has its benefits, the government needs to be cautious about preventing market flooding by imported cars. The policy could include provisions for anti-dumping duty to ensure a level playing field for local manufacturers who have invested significantly in building their EV portfolios.