E-Vehicle Policy: Firms That Setup Facilities For EVs Will Be Allowed Limited Imports At Lower Customs Duty

Currently, India imposes hefty taxes ranging from 70 per cent to 100 per cent on imported cars, depending on their value

The Centre on Friday unveiled an approved scheme aimed at positioning India as a prime destination for manufacturing electric vehicles (EVs) equipped with cutting-edge technology. The Ministry of Commerce & Industry said, "The policy is crafted to entice investments from renowned global EV manufacturers into the Indian market."

Under the new policy framework, companies are required to commit a minimum investment of Rs 4,150 crore within the country and are granted a three-year window to establish local manufacturing units for EVs, with a stipulation that at least 25 per cent of the components must be domestically sourced. This move potentially supports Tesla's aspirations to enter the Indian market.

Qualified companies meeting these criteria will enjoy the privilege of importing up to 8,000 EVs annually at a reduced import duty of 15 per cent for cars priced at $35,000 and above. Currently, India imposes hefty taxes ranging from 70 per cent to 100 per cent on imported cars, depending on their value.

The anticipated benefits of this initiative include access to state-of-the-art technology, fortifying the EV ecosystem, and lending support to the Make in India campaign, as highlighted in the government's official statement. Additionally, the duty exemption on imported EVs is limited to either the annual PLI incentive (Rs 6,484 crore) or the entity's investment, whichever is lower.

Raman Bhatia, founder and managing director, Servotech Power Systems, said, "The new electric vehicle policy will make India a global powerhouse for EV manufacturing. It is a boon for India’s booming economy and acts as a major push forward in the nation’s aspirations for clean transportation. This policy acts as a gateway for large-scale investments from global EV giants like Tesla, making India an EV manufacturing hub globally and providing the much-needed impetus for the local players to enhance their manufacturing capacities and adapt high-tech EV technologies. This healthy rivalry will drive innovation, reduce production costs, and ultimately benefit Indian consumers with a broader range of high-quality, affordable EVs."

The new policy at a glance

Minimum Investment required: Rs 4,150 crore ($500 million).
No limit on maximum Investment.
Timeline for manufacturing: 3 years for setting up manufacturing facilities in India, and to start commercial production of e-vehicles, and reach 50 per cent domestic value addition (DVA) within 5 years at the maximum.
Domestic value addition (DVA) during manufacturing: A localisation level of 25 per cent by the 3rd year and 50 per cent by the 5th year will have to be achieved.
The Customs Duty of 15 per cent (as applicable to CKD units) would be applicable for a period of 5 years.
Vehicle of CIF value of $35,000 or above will be permissible.
The total number of EV allowed for import would be determined by the total duty foregone or investment made, whichever is lower, subject to a maximum of Rs 6,484 crore (equal to incentive under PLI scheme).
Not more than 8,000 EVs per year would be permissible for import under this scheme. 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.

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