Context
Global automakers might get some relief as the government is considering allowing existing investments in electric vehicle (EV) manufacturing to qualify for import concessions.
- Objective: To grow the electric vehicle industry by providing investment incentives and lowering import duties.
- This initiative makes it attractive for global companies like Tesla to enter the market.
About EV Policy 2024
- Purpose: The EV policy 2024 aims to make EVs more affordable and accessible, to reduce pollution, decrease dependence on fossil fuels, and foster sustainable economic growth.
- It also promotes manufacturing of EV.
- Environmental Impact: By encouraging the use of EVs, the policy aims to significantly reduce greenhouse gas emissions and improve air quality in urban areas.
- Technological Advancement: The policy promotes the development and adoption of advanced technologies in the automotive sector, driving innovation and competitiveness.
- Economic Growth: Overall, EV policy 2024 stimulates economic growth by creating new business opportunities, boosting the automotive industry, and attracting foreign direct investment
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Key Highlights of the New EV Policy 2024
Under the EV policy 2024, global automakers can import fully built EVs at a reduced import duty of 15% for five years.
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- This applies to electric vehicles with a minimum cost of $35,000 (including cost, insurance, and freight).
- Existing Investments: Companies with existing investments in EV manufacturing may qualify for a lower import duty of 15% for a three-year period.
- This concession applies even to companies that invested in EV factories before the policy was announced.
- CBUs (Completely Built Units):
- CBUs priced above $40,000: Subject to a 100% import duty.
- CBUs priced below $40,000: Subject to a 70% import duty.
- CKD (Completely Knocked Down) Units:
- The 15% concessional duty matches the rate for CKD (assembled) units.
- However, Companies must commit to setting up manufacturing facilities in India within three years.
- Minimum investment: Rs 4,150 crore ($500 million) of investment required.
- Upper Limit: There is No upper limit on investment.
Localization & Incentives
- Local value addition: Companies need to achieve 25% local value addition by year three and 50% by year five.
- Capped Duty Foregone: The total amount of tax exemption on imported EVs has a limit. This limit is either the total investment made by the company or Rs 6,484 crore (whichever is lower).
- Import Quota: There’s a restriction on the number of EVs that can be imported yearly.
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- The Maximum import of 40,000 EVs allowed (8,000 per year) for investments exceeding $800 million.
Benefits of New EV Policy 2024
The new EV policy 2024 offers several benefits to both global automakers and the Indian government.
For Global Automakers:
- Reduced Import Duty: Companies can import EVs at a significantly lower duty rate of 15% compared to the existing 100% or 70% duty structure.
- Phased Manufacturing: The policy allows a three-year window to set up domestic manufacturing facilities, providing flexibility for companies.
- Incentive for Early Investment: Even investments made before the policy announcement can be considered for benefits, encouraging early movers.
- Potential for Higher Sales Volumes: The concessional duty scheme and increasing EV demand in India could lead to higher sales for global automakers.
For the Indian Government
- Boost to Domestic Manufacturing: The EV policy 2024 incentivizes setting up EV manufacturing units in India, promoting job creation and technology transfer.
- Increased EV Adoption: Lower import duty makes EVs more affordable and helps in accelerating EV adoption which further reduces dependence on fossil fuels.
- Enhanced Localization: The policy mandates gradual increase in local value addition, which strengthens the domestic EV ecosystem and reduces reliance on imports.
- Revenue Generation: The policy encourages investments and creates a new revenue stream for the government through taxes and duties.
Challenges of New EV Policy 2024
- High Investment : The requirement of a minimum $500 million investment might be a hurdle for some smaller or newer EV manufacturers who might be interested in entering the Indian market.
- Tight Timeframe: Setting up a full-fledged manufacturing facility within 3 years can be a demanding task, especially for companies new to the Indian market.
- Delays due to bureaucratic hurdles or unforeseen circumstances could put the concessional duty benefit at risk.
- Focus on Premium Segment: The policy’s emphasis on EVs with a minimum cost of $35,000 might not incentivize the import and production of more affordable electric vehicles for the mass market.
- This could limit the overall impact on EV adoption in India.
- Compliance and Bank Guarantee: The bank guarantee for adhering to investment and domestic value addition targets could put financial pressure on companies, especially if unforeseen circumstances impact their ability to meet these targets.
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May 20, 2024
