GS Paper II & III

News Excerpt:

To promote the manufacturing of electric vehicles in India The Union Government has approved a new EV policy that will pave the way for EV manufacturers like Tesla and BYD to manufacture locally.

Objectives of the policy:

• The central goal of this policy is to enable transitioning to localised production of EVs in a commercially viable manner and plan as per local market conditions and demand.  
• The move attempts to combine two goals - localising production and an annual EV car sale of 30% by 2030. 

Major provisions of the new EV Policy::

• Automakers are permitted to import a maximum of 8,000 electric vehicles (EVs) annually, priced at $35,000 or more, with a reduced import duty of 15%.
• Presently, India imposes 70% to 100% customs duty on imported vehicles, depending on their value.
• To qualify for this benefit, automakers must pledge to invest a minimum of ₹4,150 crore (∼$500 million) in India within the next three years.
• They are required to achieve a 50% Domestic Value Addition (DVA) in vehicles manufactured in India within five years.
• A localization level of 25% by the 3rd year and 50% by the 5th year will have to be achieved
• A maximum of 40,000 EVs can be imported under the scheme at not more than 8,000 units a year, provided the minimum investment made is $800 million. 
• Carryover of unused annual imports limits is permitted. 
• The scheme will be administered by the Ministry of Heavy Industries (MHI). 

Demand of major EV manufacturers for the scheme:

• Tesla, the leading EV OEM made the proposal to the government to lower custom duty on the import of EVs.
• It had welcomed the Indian proposal to set up a manufacturing facility but demanded lower import duties on electric cars. 

Impact on the domestic automakers:

• The new Electric Vehicle Policy is likely to intensify competition in the electric passenger vehicle (PV) segment, but will benefit domestic auto component players due to its emphasis towards localization.

• Positive impact:

• The policy makes it lucrative for global EV players, and Indian Joint Ventures with such players, to expand sales and manufacture in India. 
• The policy is expected to benefit domestic auto component players who invest in advanced technologies that are currently not manufactured in India. It can help the auto component sector absorb high-end technology faster, as 50% localization is needed in five years.
• The new policy will also help the industry benefit from economies of scale, lower production costs, reduced crude oil imports, lower trade deficit, reduced air pollution (particularly in cities), and a positive impact on health and the environment.
• Negative impacts:
• Lowering duties would hit the domestic industry and “the investment climate will get vitiated.” India’s EV players required more government support in the early growth stage of the industry. 
• The entry of Tesla into the Indian market will lead to an increase in competitive intensity and the domestic players will have to step up their play in the electric vehicle segment.
• Some global OEMs in the luxury space who have already introduced their EVs in India and are planning to localise “may be at a disadvantage.”
• Most Indian players are leading in the segments below ₹29 lakhs as of now, and hence this policy benefit (from 15% import duty) will likely be for Original Equipment Manufacturers (OEMs) catering to consumers in the higher end of the market.

Challenges in EV adoption in India:

• The Indian EV market that consists of two and three-wheelers, passenger cars and even light commercial vehicles, is plagued by low-battery capacity and lower range (when compared with EV models in E.U., China and the U.S.), with crucial parts/systems being imported.
• Lack of proper charging infrastructure, range anxiety, and limited number of products in the affordable range due to limited localisation are also major challenges with EV adoption in India.
• The Indian market has relied heavily only on government incentives till now. Therefore, global players face the challenge of delivering high-quality products at an accessible price point, along with dependable driving ranges and a robust charging infrastructure.
• Upscaling charging infrastructure is crucial to scale EV adoption.
• According to the Confederation of Indian Industry (CII), India may require at least 13 lakh charging stations by 2030 to support “aggressive EV uptake.”
• According to the Ministry of Heavy Industries, nine cities with a population of more than 4 million — Delhi, Mumbai, Pune, Ahmedabad, Surat, Bengaluru, Chennai, Hyderabad and Kolkata— would each require 18,000 public charging stations by 2030.

Impact of the policy on the Indian market and consumers:

• Indian customer expectations are very challenging and very price sensitive. In the past, global players who entered the Indian market with products made for other countries were not successful.
• So global players setting up shop in India must consider local circumstances, like the environment, roads, driving behaviour and usage conditions.

• The policy will push global OEMs to understand the Indian market in an accelerated fashion.
• Global EV manufacturers are not only eyeing the Indian market but are also considering making India a hub for exports.
• It is a win-win scenario for the Indian consumer, the local EV ecosystem and global OEMs.
• The localisation targets under the scheme would open “significant opportunities for the Indian EV ecosystem. 
• Excluding chips, battery cells, magnets, all other components like body parts, motors, electric parts can be localised within three years, while other areas can be indigenised in the medium term including BMS (battery management system) which is mostly software driven. 
• Five years is a sufficiently long-time frame to achieve 50% localisation.
• The policy will also bring clarity for prospective manufacturers to make long-term decisions.
• The reduction in custom duty on import of completely built units for testing and market trials would help global players accelerate the development process with reduced risk. 

Way Forward:

• The policy attempts to pave the way for global EV manufacturers to invest in India and to manufacture locally.
• It will provide Indian consumers with access to the latest technology and boost the Make in India initiative, strengthening the EV ecosystem by promoting healthy competition among EV players.
• It would lead to higher production, attaining economies of scale, and help reduce air pollution.