What is India’s Latest Approach to Localising EV Manufacturing?

More than a year after its announcement, the Ministry of Heavy Industries (MHI) has notified the Scheme to Promote Manufacturing of Electric Passenger Cars in India.

Features of the Scheme

• Reduced Customs Duty: Import duty slashed from 70–100% to 15% for completely built electric cars. Applicable only to vehicles valued at $35,000 (including cost, insurance, and freight (CIF)). Valid for a period of five years.
• Localisation Requirements: To qualify for the reduced duty, overseas manufacturers must:
  • Invest a minimum of ₹4,150 crore in three years.
  • Achieve 25% domestic value addition (DVA) within three years, and 50% within five years.
  • Establish manufacturing infrastructure in India
• Import Ceiling: Only 8,000 vehicles/year can be imported under the reduced duty. No carry-over of unused quota across years. Maximum total duty foregone capped at ₹6,484 crore.
• Duty Savings per Vehicle: An imported EV valued at $35,000 (₹29.75 lakh):
  • At 15% duty: ₹4.6 lakh
  • Earlier at 70% duty: ₹20.8 lakh
  • Savings: ₹16.2 lakh
  • Add 5% IGST, final landing cost ≈ ₹36 lakh

Challenges Associated with EV manufacturing

• Technology Transfer Concerns: Shouvik Chakraborty, Assistant Research Professor at the University of Massachusetts suggests that while a domestic industrial policy is good, its success hinges on technology sharing with domestic automakers. 
  • However, countries are often cautious about transferring technology to maintain their competitive advantage.
• Building a Domestic Ecosystem: Dinesh Abrol, adjunct faculty at JNU, notes that foreign firms historically haven’t built other countries’ ecosystems. 
  • He attributes China and South Korea’s manufacturing success to their focus on skilling, R&D, and innovation, which created conditions for technology transfer. China currently accounts for 70% of global EV manufacturing.
• Disproportionate Emphasis: Concerns exist regarding the potential over-focus on four-wheeler EVs and its impact on India’s goal of achieving Net Zero by 2070. 
  • As of FY 2025, EVs constituted 7.8% of all vehicle sales in India, primarily driven by electric three-wheelers (57%) and two-wheelers (6.1%), with passenger vehicles at only 2.6%.
  • The International Energy Association (IEA) identified India as the world’s largest market for electric three-wheelers in 2024, with sales growing 20% year-on-year
• High Input Costs and Localization: S&P Global Mobility highlighted in March that high initial costs (20-30% higher than ICE counterparts) and India’s reliance on imported components and batteries hinder EV sector growth. 
  • Despite government efforts, the rate of localization is “not increasing as expected.”
• Cost Concerns: Tata Motors reportedly opposed Tesla’s proposal for lower import duties in December 2023, arguing it would “vitiate” the investment climate that assumed continued tax regime favoritism for local manufacturers. 
  • Tata Motors also stressed the need for more government support for Indian EV players in the early growth stage
• Domestic Production: The IEA’s EV Outlook indicated that domestic OEMs accounted for over 80% of electric cars produced domestically in 2024. 
• High import duty: High import duties previously contributed to Chinese imports having less than a 15% share in India’s EV sales in 2024, alongside the availability of affordable locally made models.
• Concerns for Domestic Industries: The lowering of duties thus raises concerns about its potential impact on domestic industries, even if not primarily from Chinese imports.
• Export Oriented : Mr. Abrol suggests the policy is “premised around foreign-capital and is export-focussed.” 

Way Forward

• Fostering Innovation: Mr Abrol advocates for a policy oriented towards building a local ecosystem, spurring R&D, and fostering innovation, noting that the lack of skilled personnel is partly due to insufficient public sector contribution.
• Strengthening Last mile connectivity: Mr. Chakraborty emphasizes that most Indians rely on public transport, and policies should prioritize strengthening it, alongside last-mile connectivity solutions like electric bikes and shuttles, to effectively combat climate change.
• Job Creation vs. Displacement: Mr. Chakraborty acknowledges that even an export-oriented approach might create jobs. 
  • However, he stresses the need to consider the overall context, including how many jobs might be displaced
  • Especially given that EVs generally have fewer conventional parts than gasoline-powered vehicles, potentially impacting existing auto component manufacturing jobs.

Conclusion

India’s EV import policy offers growth potential but risks undermining domestic manufacturers and displacing jobs due to fewer components in EVs. Without strong local R&D, skill development, and technology sharing, the benefits may disproportionately favour foreign firms.