Context:
On March 15, the Union government sanctioned a pivotal policy aimed at positioning India as a manufacturing powerhouse for Electric Vehicles (EVs), with a minimum investment threshold set at ₹4,150 crore. This policy heralds a new era, paving the way for renowned global EV manufacturers such as Tesla and Chinese giant BYD to venture into the Indian market.
Relevance:
GS2-
Government Policies and Interventions
GS3-
- Achievements of Indians in Science and Technology
- Mobilization of Resources
Mains Question:
The Union government recently sanctioned a policy aimed at positioning India as a manufacturing powerhouse for Electric Vehicles (EVs). In this context, discuss the details of this policy while suggesting a way forward strategy to further upscale electric vehicle adoption. (15 Marks, 250 Words).
EV Market in India:
More on the Policy:
At the heart of this policy lies a strategic objective: to facilitate a seamless transition towards localized EV production in a financially sustainable manner, aligning with local market dynamics and consumer demand.
Reduction in Import Duties:
- Notably, a significant provision of this policy entails a substantial reduction in import duties on electric vehicles brought in as Completely Built Units (CBUs) with a minimum Cost, Insurance, and Freight (CIF) value of $35,000.
- Over a five-year period, the import duty is slashed from the current 70%-100% to a mere 15%, contingent upon the establishment of a manufacturing unit within three years.
Incentivization:
- Furthermore, the policy offers a lucrative incentive by waiving a total duty amounting to ₹6,484 crore or a sum commensurate with the investment made, whichever is lower, on the total quantity of EVs imported.
- However, this scheme imposes a cap of 40,000 EV imports, not exceeding 8,000 units annually, provided that the minimum investment threshold of $800 million is met.
Localization Targets:
- Another crucial facet of this initiative pertains to localization targets. Manufacturers are granted a three-year window to establish their production facilities within India.
- They are expected to achieve a localization level of 25% by the third year of incentivized operation, escalating to 50% by the fifth year.
- Failure to meet these localization targets, coupled with the inability to fulfil the stipulated minimum investment criteria, will result in the revocation of manufacturers’ bank guarantees.
What about the Local Industry Participants?
- In December 2023, Tata Motors, as reported by Reuters, voiced opposition to the proposal put forth by Tesla. Tata Motors contended that reducing duties would adversely impact the domestic industry and potentially disrupt the investment climate.
- Currently, most Indian players excel in segments priced below ₹29 lakh. Consequently, the benefits of this policy, particularly the reduction in import duties to 15%, are likely to accrue primarily to Original Equipment Manufacturers (OEMs) catering to consumers in the higher-end market segments.
- Additionally, the policy incentivizes global EV manufacturers and Indian joint ventures with such entities to expand their sales and manufacturing operations within India.
How does the Policy Address the Needs of the Indian Market?
- A Distinguished Fellow at The Energy and Resources Institute (TERI), emphasizes that global players venturing into the Indian market must take into account local factors such as environmental conditions, road infrastructure, and usage patterns.
- While there has been substantial penetration in the two and three-wheeler segments, the contribution from passenger vehicles remains modest at 2.2% thus far.
- This is majorly due to challenges such as inadequate charging infrastructure, concerns about range limitations, and a limited selection of affordable EV models due to insufficient localization efforts.
- The Confederation of Indian Industry (CII), in a report from July 2023, projected that India may require a minimum of 13 lakh charging stations by 2030 to facilitate the anticipated surge in EV adoption.
- A retired professor from the Institute for Studies in Industrial Development, elaborates on the necessity of building a robust EV ecosystem capable of ensuring the reliability and durability of components, as well as providing comprehensive service support.
- A policy shift towards a 21st-century paradigm that prioritizes not only competitive products but also sustainability is the need of the hour. The focus should be on tailoring product and system designs, as well as business portfolios, to align with domestic demand, with exports following suit.
- The importance of leveraging appropriate product and system designs, especially in the context of two-wheelers, three-wheelers, and four-wheelers, to guide policies like the Production-Linked Incentive (PLI) needs to be stressed on.
Conclusion:
Foreign capital alone is not the way out and there is a need for Indian manufacturers to be steered in the right direction. The comprehensive policy framework, as seen above, underscores the government’s concerted efforts to foster a robust EV ecosystem and drive sustainable growth in the sector.
