The Union Government of India has approved a scheme to promote India as a manufacturing hub for electric vehicles. The policy is designed to attract foreign investments with the latest technology for electric vehicles manufacturing by the reputed global electric vehicle manufacturers, such as Tesla, Vin-Fast, BYD, Kia, Škoda, BMW, and Mercedes-Benz.
Electric Vehicle at Charging Port
This policy will provide Indian consumers with access to the latest technology. This will also boost the Make in India initiative, and strengthen the electric vehicle ecosystem by promoting healthy competition among electric vehicle manufacturers. This will generate a high volume of production with lower production costs and lower the sale price. It helps to reduce the import of crude oil, lower trade deficit, reduce air pollution, especially in cities, and have a positive impact on health and the environment.
This new policy mandates the manufacturers to invest a minimum of Rs 4,150 crore ($500 million)in the country and will give three years to set up local manufacturing for Electric vehicles with at least 25% of the parts and components to be procured from the local market of India only.
Companies that meet these requirements will be allowed to import 8,000 EVs a year at a lower import duty of 15% on cars costing $35,000 and above. India levies a tax of 70% or 100% on imported cars depending on their value.
The move is expected to provide access to the latest technology enhance the EV ecosystem and support the Make in India initiative, the statement issued by the government said. The duty waiver on Electric Vehicles, which can be imported is capped at the annual PLI incentive (Rs 6,484 crore) or the investment made by the entity, whichever will be lower.
Photo: Bloomberg
A quick summary of what the new policy necessitates: –
- Minimum investment required:
The minimum investment required is Rs 4,150 crore ($500 million) with no limit on maximum Investment.
- Timeline for manufacturing:
The timeline for manufacturing is 3 years for setting up manufacturing facilities in India to start commercial production of electric-vehicles and reach 50% domestic value addition (DVA) within 5 years at the maximum.
- Domestic value addition (DVA) during manufacturing:
A localization level of 25% by the 3rd year and 50% by the 5th year will have to be achieved.
- Custom Duty:
The customs duty of 15% (as applicable to CKD units) would be applicable on vehicle of minimum CIF value of USD 35,000 and above for a total period of 5 years subject to the manufacturer setting up manufacturing facilities in India within a 3-year period.
- The duty foregone on the total number of EV allowed for import would be limited to the investment made or Rs 6,484 crore (equal to incentive under PLI scheme) whichever is lower. A maximum of 40,000 EVs at the rate of not more than 8,000 per year would be permissible if the investment is of $800 million or more. The carryover of unutilised annual import limits would be permitted.
- The investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone.
- The Bank guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria defined under the scheme guidelines.
