India’s new EV policy spurs global manufacturers to produce locally

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In an effort to position India as a prime manufacturing hub for electric vehicles (EVs), the government has introduced attractive provisions in its new EV policy. The policy provides global manufacturers with a discounted customs duty rate of 15 per cent for a period of five years, provided they commit to investing a minimum of 41.5 billion in setting up production plants within the country. This relaxation is contingent upon specific conditions, including that only EVs with a cost, insurance, and freight value exceeding $35,000 qualify for import under this initiative. Presently, India imposes a 70 per cent to 100 per cent tax on imported vehicles depending on their value.

The concession will be applicable to completely knocked down units, which denote vehicles delivered disassembled and then assembled at the destination. An annual import cap of 8,000 units is imposed, with the possibility of carrying over unused import quotas from previous years. The quantity of EVs allowed for import will be restricted to either the total customs duty exemption granted or the investment made, whichever is less, with a maximum threshold of 64.84 billion, corresponding to the incentive offered under the production-linked incentive programme. In line with the objectives of the new EV policy, designed to enhance the EV ecosystem through fostering robust competition among EV manufacturers and driving increased production, companies will be allotted a three-year period to establish their manufacturing facilities and initiate commercial production within India. Throughout this initial phase, they are required to achieve a domestic value addition (DVA) of at least 25 per cent.

The policy requires companies to escalate their localisation endeavors, attaining a DVA of 50 per cent within five years from the start of operations. The government emphasises that this measure is essential for nurturing the indigenous EV ecosystem and bolstering the domestic supply chain. Although the government has established a minimum investment threshold to access the incentives, there is no limit on the maximum investment, enabling companies to expand their operations according to their business strategies. To ensure adherence, companies will need to furnish a bank guarantee against the waived customs duty, which will be enforced if the DVA and minimum investment benchmarks are not fulfilled. The primary objective of the policy is manifold – it aims to offer Indian consumers access to innovative EV technology, bolster the Make in India initiative, diminish reliance on crude oil imports, narrow the trade deficit, and alleviate urban air pollution.

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