The Indian government recently authorized a new Electric Vehicle (EV) Policy. The policy aims to attract international EV companies and position India as a major hub for EV production.This strategy also intends to decrease air pollution in metropolitan areas and slash production costs. It aims to reduce oil imports and increase the availability of state-of-the-art electric vehicle (EV) models to Indian consumers.

Additionally, it aims to broaden the Make in India ecosystem and foster a competitive domestic car manufacturing sector. Here are some of the insights of the latest New EV policy

Key Components of India’s New EV Policy:

1. Minimum Investment Requirement: Companies must invest a minimum of INR 41.5 billion (US$500 million) within three years. There is no maximum limit on investment.

2. Manufacturing Timeline: Businesses must set up shop and start producing EVs for sale within three years. They must meet two requirements by the end of the three-year period: firstly, 25% domestic value addition (DVA) and 50% DVA.

3. Customs Duty Exemption: If manufacturing facilities are not established within three years, a five-year period will apply with a minimum Cost, Insurance, and Freight (CIF) value of US$35,000 and above and a customs charge of 15% (as applicable to CKD units).

4. Import Limit and Duty Foregone: The amount of duty waived on the overall quantity of electric vehicles (EVs) that can be imported shall not exceed the investment amount, or INR 64.84 billion, whichever is less. For investments of US$800 million or more, an import cap of 40,000 EVs at a pace of no more than 8,000 per year will be allowed. It will be possible to carry over unused annual import limitations.

5. Bank Guarantee Requirement: An Indian bank guarantee must support investment pledges, using it as leverage if the minimum investment requirements and DVA are not met.

With two notifications dated March 15, 2024, the Central Board of Indirect Taxes and Customs (CBIC) announced that, under certain restrictions, EV imports falling under heading 8703 of the Customs Tariff would be free from the social welfare surcharge and have their basic customs duty (BCD) reduced to 15%.

Clarifications to VinFast:

VinFast, an automobile company located in Vietnam, received clarification from the government regarding the new EV policy’s investment requirements. They also received information about the qualifying timetable. In light of the clarification:

1. Investment Requirement: In order to qualify for incentives, companies must invest US$500 million within the first three years of business. Vehicles with a 25% DVA should come out of the factory as a result of this investment.

2. Timeline for Investment Counting: A new plant, like the one in Thoothukudi, can only have its investments counted 240 days after it begins construction. The first 120 days are the application window, and then the Ministry will review and confirm the information for an further 120 days. Not until eight months later does the investment recognition begin in earnest.

3. Consequences of Non-compliance: Should the US$500 million investment not be completed within the allotted three years, the company will not be entitled for the bank guarantee that is indicated in the policy.

Concerns and Impact

The new EV policy has automobile companies worried about the scope in India’s car industry. They fear that offering exclusive import duty rates to new competitors could hurt already established firms. Large luxury manufacturers like Mercedes-Benz, BMW, and Volkswagen are thinking twice before taking advantage of reduced tariffs. Instead, they may decide to directly invest in local production capacity.

The entry of Chinese automakers is also worrying domestic industry participants, as India already imports a sizable quantity of auto components from China. The new EV Policy has implemented import quotas for reduced tariffs. It also provides connected access to time-bound local investments, addressing these concerns.

Final Takeaway

India’s EV Policy seeks to decrease pollution, promote the expansion of the EV industry, and position India as a hub for EV manufacture worldwide. Businesses wanted to enter in EV market need to understand the term and conditions of new EV policy.