The electric vehicle policy announced by the government on Friday is a fine mix of incentives and deliverables, which lay the ground for global manufacturers to explore India as a production hub to service the world market. True, the policy has been designed keeping Elon Musk’s Tesla in mind because it had been insisting on reduction of import duty before considering domestic assembly, but no company has been given a free ride. India’s automobile market is a developed one with all global players having a manufacturing base here. But then it’s mostly for internal combustion engine technology. The emerging area of EVs comprise only around 1% of the passenger vehicle market. Even in the luxury segment where Tesla operates, the share of EVs is around 3-4%. Providing an incentive structure to attract investments in a nascent area certainly makes sense, because manufacturers need to relocate their existing supply chains.
The government has come out with production-linked incentive schemes in a host of sectors, and has tasted success mainly in electronics. An incentive-based scheme has started yielding results in the high-tech area of semiconductors. The duty-based incentives linked with setting up production facilities for EVs seems to be an extension of this approach. At present, 70% import duty is levied on completely built-up units costing less than $40,000, and 100% on vehicles priced higher than this. Under the EV policy, the duty has been brought down to 15% on vehicles priced $35,000 and above for a five-year period, subject to the manufacturer setting up manufacturing facilities within a three-year period. In addition, 25% localisation needs to be met within three years and 50% at the end of the fifth year.
The minimum investment commitment is Rs 4,150 crore ($500 million) and the total number of EVs permitted for import has been capped at the investment made or Rs 6,484 crore, which is equal to incentive under the PLI scheme. A maximum of 40,000 EVs, at a rate not exceeding 8,000 per year, will be allowed if the investment crosses $800 million. Companies will have to back their commitments with a bank guarantee in lieu of the duty forgone, and this will be encashed if they fail to meet the investment criteria. There can be no complaints about the fairness of the policy as it also opens the gate to a host of global players. Of the 15 models which are available in the market by these manufacturers, only two are currently domestically assembled. Domestic EV manufacturers should not have a reason to complain because they operate at lesser price points. The average price of a car in India has gone up from Rs 6 lakh to Rs 10 lakh only over the last 10 years.
Also Read Fifth column by Tavleen Singh: Of elections and bonds IWD’24: Women entrepreneurs from Tier-2 Tier-3 cities of India are building successful businesses with e-commerce India’s agri-tech revolution is leaving women farmers behind Across the Aisle by P Chidambaram: Can we elect freedom and development? While the framework has been done well, the tough part will be in implementing it. Manufacturers opting for the scheme will need land to set up their units and the ancillary industry to meet domestic value addition. If the process of identifying land parcels and compensation from the parties it is acquired from isn’t fast and smooth, deadlines can be missed. In such a scenario, encashment of bank guarantees will pose a legal challenge, which can turn messy as the law here is tilted in favour of the encasher. The success of the policy, therefore hinges on the next set of reforms where the government has talked about factors of production, which includes land.
The electric vehicle policy announced by the government on Friday is a fine mix of incentives and deliverables, which lay the ground for global manufacturers to explore India as a production hub to service the world market. True, the policy has been designed keeping Elon Musk’s Tesla in mind because it had been insisting on reduction of import duty before considering domestic assembly, but no company has been given a free ride. India’s automobile market is a developed one with all global players having a manufacturing base here. But then it’s mostly for internal combustion engine technology. The emerging area of EVs comprise only around 1% of the passenger vehicle market. Even in the luxury segment where Tesla operates, the share of EVs is around 3-4%. Providing an incentive structure to attract investments in a nascent area certainly makes sense, because manufacturers need to relocate their existing supply chains.
The government has come out with production-linked incentive schemes in a host of sectors, and has tasted success mainly in electronics. An incentive-based scheme has started yielding results in the high-tech area of semiconductors. The duty-based incentives linked with setting up production facilities for EVs seems to be an extension of this approach. At present, 70% import duty is levied on completely built-up units costing less than $40,000, and 100% on vehicles priced higher than this. Under the EV policy, the duty has been brought down to 15% on vehicles priced $35,000 and above for a five-year period, subject to the manufacturer setting up manufacturing facilities within a three-year period. In addition, 25% localisation needs to be met within three years and 50% at the end of the fifth year.
The minimum investment commitment is Rs 4,150 crore ($500 million) and the total number of EVs permitted for import has been capped at the investment made or Rs 6,484 crore, which is equal to incentive under the PLI scheme. A maximum of 40,000 EVs, at a rate not exceeding 8,000 per year, will be allowed if the investment crosses $800 million. Companies will have to back their commitments with a bank guarantee in lieu of the duty forgone, and this will be encashed if they fail to meet the investment criteria. There can be no complaints about the fairness of the policy as it also opens the gate to a host of global players. Of the 15 models which are available in the market by these manufacturers, only two are currently domestically assembled. Domestic EV manufacturers should not have a reason to complain because they operate at lesser price points. The average price of a car in India has gone up from Rs 6 lakh to Rs 10 lakh only over the last 10 years.
While the framework has been done well, the tough part will be in implementing it. Manufacturers opting for the scheme will need land to set up their units and the ancillary industry to meet domestic value addition. If the process of identifying land parcels and compensation from the parties it is acquired from isn’t fast and smooth, deadlines can be missed. In such a scenario, encashment of bank guarantees will pose a legal challenge, which can turn messy as the law here is tilted in favour of the encasher. The success of the policy, therefore hinges on the next set of reforms where the government has talked about factors of production, which includes land.
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A win-win drive
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18.03.2024
The electric vehicle policy announced by the government on Friday is a fine mix of incentives and deliverables, which lay the ground for global manufacturers to explore India as a production hub to service the world market. True, the policy has been designed keeping Elon Musk’s Tesla in mind because it had been insisting on reduction of import duty before considering domestic assembly, but no company has been given a free ride. India’s automobile market is a developed one with all global players having a manufacturing base here. But then it’s mostly for internal combustion engine technology. The emerging area of EVs comprise only around 1% of the passenger vehicle market. Even in the luxury segment where Tesla operates, the share of EVs is around 3-4%. Providing an incentive structure to attract investments in a nascent area certainly makes sense, because manufacturers need to relocate their existing supply chains.
The government has come out with production-linked incentive schemes in a host of sectors, and has tasted success mainly in electronics. An incentive-based scheme has started yielding results in the high-tech area of semiconductors. The duty-based incentives linked with setting up production facilities for EVs seems to be an extension of this approach. At present, 70% import duty is levied on completely built-up units costing less than $40,000, and 100% on vehicles priced higher than this. Under the EV policy, the duty has been brought down to 15% on vehicles priced $35,000 and above for a five-year period, subject to the manufacturer setting up manufacturing facilities within a three-year period. In addition, 25% localisation needs to be met within three years and 50% at the end of the fifth year.
The minimum investment commitment is Rs 4,150 crore ($500 million) and the total number of EVs permitted for import has been........
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