The Indian government expects significant interest from numerous automobile companies in response to its recently unveiled electric vehicle (EV) policy, aimed at attracting global players like Tesla. This announcement underscores India’s commitment to becoming a major hub for EV manufacturing.
Government’s strategic tariff tweaks
Rajesh Kumar Singh, Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT), highlighted that the government has strategically utilised tariff adjustments to attract investments without direct financial outlay. “While many focus on one company like Tesla, we anticipate responses from various manufacturers to our policy,” Singh stated at the Confederation of Indian Industry’s annual business summit.
EV policy details
Approved on March 15, the new policy offers duty concessions to companies investing a minimum of USD 500 million in setting up EV manufacturing units in India. The goal is to entice prominent global EV manufacturers. According to the policy, companies have three years to establish manufacturing facilities and commence commercial production, aiming for a 50% domestic value addition (DVA) within five years.
Incentives for EV manufacturers
Under the new policy, manufacturers of EV passenger cars can import a limited number of vehicles at a reduced customs duty of 15%, provided the vehicles cost USD 35,000 or more. This concession is valid for five years from the issuance of the approval letter. Currently, cars imported as completely built units (CBUs) attract a customs duty of 70-100%, depending on the vehicle’s engine size and cost.
Promoting India as an EV manufacturing hub
The policy aims to position India as a prime destination for EV manufacturing, attracting substantial investments from renowned global EV manufacturers. “We are leveraging tariff and non-tariff measures to ensure that our production-linked incentive (PLI) scheme goals for investments are met,” Singh explained.
Commitment from the tyre industry
In addition to the EV sector, Singh noted that India has secured investment commitments from two major multinational firms in the tyre industry. These commitments came after India agreed to relax import restrictions in exchange for the companies establishing manufacturing lines in the country. “We allowed the import of certain products on the condition that they would be manufactured in India, thus fostering local production,” Singh added.
Quality control norms
India has imposed mandatory quality control norms for specific tyre types and placed some on the licence list to bolster domestic manufacturing. Singh highlighted that these measures are part of a broader strategy to attract investments and enhance local production capabilities.
Free trade agreements and investment commitments
Discussing the recent free trade agreement (FTA) with the European Free Trade Association (EFTA), Singh emphasised its unique investment commitments. “This FTA includes provisions to monitor investment commitments and retract market access if those commitments are not met,” he stated. The agreement, signed on March 10, commits EFTA members to invest $100 billion in India over 15 years, while allowing several products from member countries at lower or zero duties.
Singh revealed that India is negotiating multiple FTAs and anticipates a less conservative stance in future agreements. He advised the industry to prepare for a regime with lower tariffs and customs duties, which will enhance competitiveness. “While we move towards lower tariffs, it’s crucial to correct any distortions or inversions in our tax regime,” Singh mentioned, noting that the DPIIT is conducting a cross-sectoral study to address these issues.
Addressing inverted duty structures
Inverted duty structures, where inputs are taxed at higher rates than finished products, hinder the competitiveness and export potential of Indian industries. Singh assured that efforts are underway to rationalise these structures through the GST Council and the finance ministry to improve the competitiveness of India’s manufacturing sector.
India’s ambitious EV policy and strategic tariff adjustments aim to position the country as a global EV manufacturing hub. By attracting significant investments from major global players and fostering local production through innovative policy measures, India is poised to lead the transition to electric mobility. As the government continues to negotiate favourable trade agreements and address tax regime distortions, the future looks promising for India’s automotive industry.