India’s New Scheme to Promote Electric Cars: A Bold and Well-Timed Policy

The Government of India consistently demonstrates its commitment to establishing India as a worldwide leader in the electric vehicle (EV) industry. After the implementation of FAME (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles) and PLI (Production Linked Incentive) scheme aimed at increasing the penetration of EVs into Indian market, last week the Government of India notified another very bold scheme, which incentivizes foreign EV majors to manufacture e-4W (Electric Four Wheelers) in India.

One of the key highlights of the new scheme is import duty reduction from the current 70% to 15% on e-4W subject to a minimum investment of US$500Million in building manufacturing facilities in India. The policy also seeks commitment from manufacturers to ensure 25% domestic value addition over a period of three years and 50% over a period of five years. This undoubtedly would help domestic auto-component industry and potentially result in foreign investment in e-4W component manufacturing sector.

Worldwide, Electric vehicle sector has grown significantly during the previous decade. China has been the EV industry’s pioneer, with significant advancements in battery production capacity, charging infrastructure, and new EV model development. China’s enormous manufacturing capability allows them to make EVs at a reduced cost. China in the year 2022 accounted for nearly 60% of all new e-4W registrations globally.

India has a low adoption rate. There is still much work to be done regarding model types, charging infrastructure, and financial incentives for EV makers. However, India has set a very ambitious target for EVs penetration. In April 2019, NITI Aayog published a report termed “India’s Electric Mobility Transformation “, which pegs EVs sales penetration in India at 70% for commercial cars, 40% for buses, 80% for 2 and 3-wheelers, by 2030.

This new scheme has been brought in at a most opportune time when the electric car markets world-wide are witnessing exponential growth. The share of electric cars in total sales has more than tripled in three years, from around 4% in 2020 to 14% in 2022. According to IEA (International Energy Agency), this share in 2023 has gone up to 18%.

As regards international trade in EVs, in 2022 the total trade was US$93Billion. Between 2021 and 2022 the exports of Electric motor Vehicles grew by 46.7%, from US$63.4Billion to US$93Billion. In 2022, the top exporters were Germany with US$26.5Billion, followed by China, Belgium, South Korea, and United States. The current trend indicates that the world market of electric vehicles is going to expand exponentially, in which large global manufacturers would play a major role. Tesla, BYD, Volkswagen, Mercedes Benz are world leaders in exports of electric passenger cars.  

It is important to note that as per the latest IEA report (Global EV Outlook 2023), the global spending on electric cars exceeded US$425billion in 2022, up 50% relative to 2021. Out of this only 10% is attributed to government support, rest all from consumers. Investors have also maintained confidence in EVs, with the stocks of EV-related companies consistently outperforming traditional carmakers since 2019. Venture capital investments in start-up firms developing EV and battery technologies have also boomed, reaching nearly US$2.1billion in 2022, up 30% relative to 2021, with investments increasing in batteries and critical minerals.

 The new scheme favouring steep duty reduction on electric passenger cars could be a game changer for India in boosting its position in world market, which is currently dominated by China, Germany, and the US. While the duty reduction may result in surge in import in the short-term, but it could have immense positive impact in medium to long-term as the duty reduction is linked to capital inflow. Further, if India has to realise its 2030 goal of EV penetration, the necessary investment requirement would be close to US$180billion in vehicle manufacturing and charging infrastructure. This can only be possible through large foreign investment.

Deep Kapuria is the Chairman of The Hi-Tech Group of Companies comprising The Hi-Tech Gears, The Hi-Tech Engineering Systems, The Hi-Tech e-Soft, and The Novus Hi-Tech Robotic Systemz. The Group has manufacturing, R&D and engineering facilities in India, Canada and USA. He is Chairman of Global Innovation & Technology Alliance (GITA – a PP project with Dept. of Science & Tech. Gov. Of India). He is the Past Co-Chair of Digital Economy and Industry 4.0 Task Force of B20, 2018 Argentina and Past Co-Chairman, CII National Committee on International Trade & Trade Policy.

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