India’s new EV policy says companies must invest at least Rs 4,150 crore in making electric cars in India within three years. They get lower taxes if they do, encouraging more car-making in India and helping the environment.
The Indian government has given the green light to a new policy aimed at attracting investments in the electric vehicle (EV) sector. According to the policy, companies can invest a minimum of Rs 4,150 crore, with no upper limit. However, there’s a condition attached. Companies participating in this scheme must establish manufacturing facilities in India within three years and kickstart commercial production of EVs. To sweeten the deal, companies investing in EV manufacturing facilities will be allowed limited imports of cars at a reduced customs duty rate.
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Under this policy, cars with a Cost, Insurance, and Freight (CIF) value of USD 35,000 ( over Rs 29 lakh) will be subject to a 15% customs duty (as applicable on Completely Knocked Down [CKD] units) for a period of five years, provided the manufacturer sets up a manufacturing facility in India within three years. Moreover, they must achieve 25% and 50% localisation by the third and fifth year, respectively.
This development is particularly noteworthy as American EV Giant Tesla has been advocating for a reduction in import duties for years. While the government had been considering the idea, it faced resistance from both Indian and foreign manufacturers operating in India, who have been actively localising their products for years.
“This move will grant Indian Consumers access to cutting-edge technology, bolster the Make in India Initiative, and enhance the EV ecosystem by fostering healthy competition among EV players. This will lead to increased production volumes, economies of scale, reduced production costs, lower reliance on crude oil imports, a decrease in the trade deficit, reduced urban air pollution, and positive environmental and health outcomes,” stated the government in a press release.
The customs duty forgone on the total number of EVs allowed for import will be capped at the investment made or Rs 6,484 crore (equivalent to the incentive under the PLI scheme), whichever is lower. If the investment exceeds USD 800 million (over Rs 66,000 crore), a maximum of 40,000 EVs, or 8,000 per year, would be permissible. Unused annual import limits can be carried over. Companies committing to the investment will be required to provide a bank guarantee as collateral for the customs duty forgone. This guarantee will be invoked in case the minimum investment criteria outlined in the scheme guidelines are not met.
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