The Union Government recently said that it would start accepting applications from global electric car manufacturers for setting up factories in India. This follows a Scheme to Promote Manufacturing of Electric Passenger Cars in India, announced on March 15, 2024. There is little to ponder over the motivation behind the scheme. India’s automotive market — about ₹12.5 lakh crore ($150 billion) big — is expected to double by 2030.
This boom will see a sharp rise in electric vehicles — electric mobility being a climate action imperative. Though two-wheelers and three-wheelers are sure to contribute the most to e-mobility, passenger car sales will also rise — 9-11 per cent of total vehicle sales (from 2.5 per cent today), according to the government’s think-tank, NITI Aayog. If a large number of electric passenger cars are to be sold in India, why not get them produced within the country? This is the premise on which the scheme stands. But the question is: Is the scheme good enough to attract a flood of investments in electric passenger car manufacturing in the country? A closer look at the scheme does not leave one convinced of its attractiveness.
The scheme offers no incentives such as tax breaks, direct capital grants or even sops such as low-cost land allotment or energy subsidies. The only sweetener is the opportunity for an investor to import a certain number of fully built, high value ($35,000) electric cars at a reduced customs duty of 15 per cent, for five years — against the regular duty of 110 per cent. Even this sop is bound by two constraints. First, a maximum of 8,000 cars per year can be imported. The revenue foregone on account of the concessional duty rate on such imports shall be only as much as the capital investment made by the car manufacturer, but not more than ₹6,484 crore. Second, there is also a minimum investment threshold of ₹4,150 crore and domestic value addition requirements of 25 per cent by the third year and 50 per cent by the fifth. India’s scheme compares poorly with those in other developing countries, such as Thailand and Mexico.
Furthermore, all this is to be read in conjunction with the fact that Chinese manufacturers are to be kept out — which means the world’s largest electric car manufacturer, BYD, cannot set shop in India. Tesla, according to the Heavy Industries Minister, HD Kumaraswamy, is not interested in coming to India — it seems to prefer to pay the full customs duty, open showrooms and be content with a tiny sliver of the market. VinFast, the Vietnamese e-car manufacturer, is already setting up a plant in India. Minister Kumaraswamy said at a press conference that car majors such as Mercedes, Skoda and Volkswagen are interested in building their factories in India, but it is difficult to believe that the scheme mattered in their decision. It appears that the scheme is about form over substance, seemingly supporting domestic car manufacturers such as Tata Motors, Mahindra, Maruti and Hyundai.