The Indian government has given the green light to a new electric car scheme with a tax cut aimed at positioning India as a major manufacturing hub. This comes at a time when the Asian nation is looking to attract foreign money for local production of the likes of Tesla.
India plans to lower import duties on select EVs for companies committing to investments of more than $500 million and establishing production facilities within three years. This landmark decision is not only aimed at attracting heavyweights like Tesla, but also underscores India’s stance of attracting foreign investment to drive local production.
“The policy is designed to attract investments in the e-vehicle space from renowned global EV manufacturers,” the government said in a statement.
While the scheme needs a minimum investment of Rs 4,150 crore or $500 million, there is no upper threshold for investments by EV manufacturers to pave way for advanced technology to be locally produced in India which strengthens its Atmanirbhar Bharat initiative.
For vehicles with a minimum CIF (Cost, Insurance and Freight) value of $35,000, 15% customs duty (as applicable to Completely Knocked Down units) will be levied for a period of five years, provided the manufacturer sets up production facilities. in India within a 3-year period. The tax waived on the total number of EVs allowed for import will be capped at the investment made or ₹ 6,484 crore (equal to incentive under PLI scheme). Additionally, a maximum of 40,000 EVs, at a rate not exceeding 8,000 per year, will be permitted if the investment exceeds $800 million.
Manufacturers will have to establish manufacturing facilities in India within a three-year timeline and begin commercial production of EVs. They must achieve a home value addition (DVA) of at least 50% within five years. In addition, a localization level of 25% before the third year is required.
The scheme also requires firms to back up their investment commitments with a bank guarantee, which will be enforced in case of non-compliance with DVA and minimum investment criteria.
Tata Motors and Mahindra & Mahindra, major Indian players, have expressed concerns about reduced EV taxes, underscoring the need for initial government support. These manufacturers are concerned about increased competition from globally favored premium EVs due to tax cuts.
Tesla’s request for an initial customs concession, aimed at offsetting customs duties at 70% for cars priced below USD 40,000 and 100% for higher-priced cars, was a focus of discussion.
India’s Commerce and Industry Minister Piyush Goyal, however, maintained that India will maintain its policies independently, without tailoring them specifically to accommodate requests from US electric vehicle (EV) maker Tesla.
He emphasized that India’s laws and tariff regulations are designed to attract global electric vehicle manufacturers to establish a presence in the rapidly expanding Indian economy.