Policy To Boost Indigenous Production Of Electric Vehicles

Context

The Union government has approved a policy to promote India as a manufacturing hub for electric vehicles (EVs)

New Electric Vehicle Policy 2024

• Goal: To enable a transition to localized production in a commercially viable manner  as per local market conditions and demand and to achieve an annual EV car sale of 30% by 2030.  
  • The policy broadly clears the path for global EV makers like Tesla and Chinese EV maker BYD to enter the Indian market.

• Reduction of import duty: The new electric vehicle policy 2024 seeks to reduce the import duty on electric vehicles imported as a completely built unit (CBU) with a minimum cost, insurance and freight (CIF) value of $35,000 to 15% from the present 70%-100%.
  • The provision will be extended for five years subject to manufacturers setting up their facilities in India within three years. 
  • A total duty of ₹6,484 crore or an amount proportional to the investment made whichever is lower would be waived on the total number of EVs imported.
• Maximum Quota on Imports: A total of 40,000 EVs can be imported under the scheme with a maximum of 8,000 units a year, provided the minimum investment made is $800 million.
  • Overall, the minimum investment cap for eligibility has been set at $500 million (approximately ₹4,150 crore).  Carryover of unused annual imports limits is permitted.
• Localisation Targets: Manufacturers will have 3 years to set up their manufacturing facilities in India with expected attainment of  25% localisation by the third year of incentivised operation and 50% by the fifth year. 
  • If the localisation targets are not achieved, and if the minimum investment criteria  is not met, the bank guarantees of the manufacturers would be invoked.

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Advantages of the New Electric Vehicle Policy

• A mid way strategy: The new electric vehicle policy 2024 is India’s attempt to find a midway point where affordability for a captive market is prioritised by encouraging foreign competition  while recognising that import substitution is a phased process which requires  a layered approach
• New opportunities for the Indian EV ecosystem: Components like body parts, motors, electric parts can be localised within three years, while other parts like chips, battery cells and magnets, can be indigenised in the medium term including BMS (battery management system).
• Accelerated understanding of the Indian market: The reduction in custom duty on import of completely built units for testing and market trials would help global players accelerate the development process with reduced risk. 
• Building EV Ecosystem: The new electric vehicle policy makes it lucrative for global EV players and their Indian JVs to expand sales and manufacture in India which would lead to technology transfer and upgrade of local supplier ecosystem benefiting  local manufacturers and boosting our overall EV ecosystem.

Concerns in the Electric Vehicles Landscape

• Endangering domestic EV players: Lowering of import duties would hit the domestic industry which is at a nascent growing state and can result in killing the competition.
• India Specific: The policy will only be successful if global players consider local circumstances and Indian customer expectations  like the environment, roads, driving behaviour and usage conditions only.
• Limitations of the Indian EV market: It  is plagued by low-battery capacity and lower range (when compared with EV models in E.U., China and the U.S.), with crucial parts/systems being imported. 
• Lacklustre EV adoption: While penetration in the two-and three-wheeler segment has been significant, passenger vehicles have seen only a 2.2% contribution thus far mainly because of  lack of proper charging infrastructure, range anxiety, and limited number of products in the affordable range due to limited localisation.
• Inadequate charging infrastructure: To scale charging infrastructure  is crucial to scale EV adoption in the country. 
  • The Confederation of Indian Industry (CII) in a 2023 report had observed that India may require at least 13 lakh charging stations by 2030 to support aggressive EV uptake.

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