New India EV Policy: A Game-Changer Reducing Import Duty from 110 to 15 Percent

India has unveiled a groundbreaking Electric Vehicle (EV) policy, significantly slashing import duties on certain electric vehicles from a steep 110% to a mere 15%. This bold move, officially named the "Scheme to Promote Manufacturing of Electric Passenger Cars in India" (SPMEPCI), aims to attract major global EV manufacturers, boost local production, and firmly establish India as a global hub for electric mobility.

The Core of the Policy: Reduced Import Duties with a Catch

The headline feature of the SPMEPCI is undoubtedly the drastic reduction in customs duty. However, this isn't a blanket concession. To avail of the reduced 15% import duty, global automakers must commit to substantial investment and manufacturing in India.

Key Provisions for Reduced Import Duty:

·         Investment Commitment: Companies must commit to investing at least Rs 4,150 crore (approximately $500 million) within three years to set up manufacturing facilities in India. This investment can include R&D, machinery, and production tools, with specific caps for charging infrastructure (up to 5% of total investment) and land/buildings (up to 10%). Previous investments or land/building costs are generally not counted towards this fresh investment.

·         Eligible Vehicles: The reduced duty applies only to premium electric vehicles with a minimum CIF (Cost, Insurance, and Freight) value of USD 35,000 (approximately Rs 30 lakh) or above. This ensures that the policy primarily targets high-end EVs and avoids disadvantaging existing domestic manufacturers of more affordable models.

·         Import Cap: A maximum of 8,000 units can be imported annually per eligible manufacturer at the reduced 15% duty rate. Unused annual import limits can be carried over to the next year, offering flexibility. Beyond this cap, the standard 110% import duty will be levied.

·         Duration of Benefit: The reduced import duty will be applicable for a period of five years from the date of application approval.

·         Total Benefit Cap: The total duty foregone for an applicant is limited to the lower of Rs 6,484 crore or the actual investment made by the applicant under the scheme.

Driving Local Manufacturing: Stringent Targets and Milestones

The policy is not merely about attracting imports; it's a strategic push for "Make in India." To ensure a genuine commitment to local production, the SPMEPCI outlines stringent performance targets and localization requirements:

·         Local Manufacturing Commencement: Manufacturers must commence manufacturing operations in India within three years of receiving approval.

·         Domestic Value Addition (DVA): Companies are required to achieve a minimum of 25% DVA within three years and progressively increase it to 50% by the end of the fifth year. This aims to foster a robust local supply chain and component ecosystem.

·         Annual Turnover Milestones: Participating carmakers must meet specific annual turnover targets: Rs 2,500 crore by the second year, Rs 5,000 crore by the fourth year, and Rs 7,500 crore by the fifth year. Penalties of up to 3% on the revenue gap may apply for those falling short.

Eligibility Criteria for Applicants:

To qualify for the scheme, global automotive manufacturers must meet specific financial benchmarks:

·         A minimum of Rs 10,000 crore in annual global revenue from automotive manufacturing.

·         At least Rs 3,000 crore in global fixed assets.

The application window for the scheme is expected to open soon and will remain open for at least 120 days, with the possibility of extensions until March 15, 2026.

Expected Impact and Industry Response:

This new policy is set to significantly reshape India's automotive landscape.

·         Attracting Global Players: The reduced import duties, coupled with the clear path to local manufacturing, are designed to entice leading global EV brands. Companies like Hyundai, Kia, Mercedes-Benz, Skoda, and Volkswagen have reportedly expressed interest in leveraging the scheme's benefits.

·         Boost to Domestic Manufacturing: By mandating DVA and manufacturing targets, the policy aims to strengthen India's indigenous EV production capabilities, create employment opportunities, and reduce reliance on imports in the long run.

·         Increased Competition and Consumer Choice: The entry of more global players is expected to intensify competition in the premium EV segment, potentially leading to more competitive pricing and a wider range of choices for Indian consumers.

·         Challenges and Concerns: While the policy is largely welcomed, some analysts have raised concerns about its stringent conditions, particularly the high investment threshold and localization requirements. For instance, Tesla, despite its long-standing interest in the Indian market, is currently not expected to participate in local manufacturing under this scheme, preferring to focus on showrooms and imported vehicles subject to the full duty. Similarly, Chinese EV manufacturers may face restrictions due to national security concerns.

·         Alignment with National Goals: The policy aligns seamlessly with India's broader national goals of achieving net-zero emissions by 2070, fostering sustainable mobility, driving economic growth, and promoting the "Make in India" and "Aatmanirbhar Bharat" initiatives.

Conclusion:

India's new EV policy marks a pivotal moment in its journey towards electric mobility. By strategically reducing import duties for committed investors and setting clear targets for local manufacturing and value addition, the government aims to transform India into a global EV manufacturing powerhouse. While challenges remain, the SPMEPCI demonstrates a strong intent to accelerate EV adoption, foster technological innovation, and create a greener, more sustainable automotive future for the nation. The coming months will be crucial in observing how global automakers respond and how effectively the policy translates into tangible investments and a vibrant EV ecosystem in India.

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