The government’s decision to drastically reduce the import duty on fully-built electric vehicles from 70 percent to 15 percent is a big move that indicates a break with the past. It is also a climbdown by the government on its Atmanirbhar policy, under which it has encouraged domestic manufacturing by keeping import duties high on several goods. The new policy also shows that the government is ready to go the extra mile to attract big companies. The policy is the result of months of hard bargaining between the government and one of the world’s largest EV manufacturers, Tesla. The US-based company, owned by maverick businessman Elon Musk, had set out conditions for investing in India—bringing down the import duty for a limited period was one of them. The hard bargain seem to have worked with the government, which has taken pride in attracting marquee brands to manufacture in India.
The new policy states the government will now allow, for a period of 5 years, the import of completely built-up (CBU) electric cars that have a minimum cost, insurance and freight value of $35,000 at a 15 percent import duty. At present, CBU vehicles priced more than $40,000 attract a 100 percent duty, while those below $40,000 are subject to 70 percent tax. But the benefit of lower import duty will be available only for companies that commit a minimum investment of Rs 4,150 crore or $500 million to manufacture in India. The companies will also have to comply with additional conditions such as increasing the rate of localisation to 25 percent within three years and to 50 percent in five years.
The new EV policy is significant given the climate goals India has set out to achieve by 2030 in the short term and by 2070 in the long term. India has committed to reducing the emissions intensity of its GDP by 45 percent by 2030 and achieving net-zero emissions by 2070. The new policy will see more EV options for customers in India as domestic manufacturers, barring a few, have largely played a wait-and-watch game. It would also force many internal combustion engine makers in India to wake up to the need for having an EV market plan in place. The competition, though, would increase in the premium category. Indian manufacturers can still be competitive in the below-Rs 30-lakh price segment.