18 March 2024
Government notifies policy to promote e-vehicle manufacturing; Slashes customs duty on initial imports
The Ministry of Heavy Industries (MHI), notified1 the "Scheme to Promote Manufacturing of Electric Passenger Cars in India" with the aim to attract investments from global EV manufacturers and promote India as a global manufacturing destination for e-vehicles. This Scheme will be valid for a period of five years or as notified by the Indian government.

Some of the key highlights of the said Scheme are as follows:
  • A minimum investment of INR 41.50 billion (USD 500 million) for manufacturing electric passenger cars. There will be no cap on maximum investment.
  • The manufacturing facility(ies) shall be made operational within three years from the date of issuance of the approval letter by the MHI.
  • The applicant shall achieve a Minimum Domestic value addition (DVA) of 25% by the 3rd year and 50% by the 5th year.
  • 15%2 customs duty [as applicable to Completely Knocked Down (CKD) Units] on Completely Built Units (CBUs) with a minimum Cost, Insurance and Freight (CIF) value of USD 35,000 for a period of five years. Not more than 8000 e-vehicles per year would be permissible for imports. However, the carryover of unutilized annual import limits shall be allowed.
  • Exemption3 from Social Welfare Surcharge (SWS) on import of CBUs as mentioned above.
  • The maximum number of EVs allowed for import would be determined by the total duty foregone or investment made, whichever is lower, subject to a maximum of INR 64.84 billion [equal to incentives under the Production Linked Incentive (PLI) Scheme].
  • The commitment to set up manufacturing facility(ies) and achievement of DVA shall be backed by a bank guarantee equivalent to the total duty foregone or INR 41.50 billion, whichever is higher, during the Scheme period. The same shall be invoked in case of non-achievement of DVA or minimum investment criteria.
  • The bank guarantee will be returned only when 50% DVA is attained and the investment of INR 41.5 billion has been made, or to the extent of duty foregone in five years, whichever is higher.
  • The applicant company or its Group Company(ies) will need to meet the following common criteria to qualify and receive benefits under the Scheme:

    Eligibility Criteria Auto OEM (Original Equipment Manufacture)
    Global Group* Revenue (from automotive manufacturing), based on the latest audited annual financial statements at the time of application. Minimum of INR 100 billion.
    Investment, based on the latest audited annual financial statements at the time of application. Global Investment of Company or its Group* Company(ies) in fixed assets (gross block) of INR 30 billion.

    • *Group Company(ies) shall mean two or more enterprises that, directly or indirectly, are in a position to exercise 26% or more of voting rights in the other enterprise.
  • Applications will be solicited within 120 days or more from the notification of this Scheme. The period for accepting applications through the Notice Inviting Applications will extend for 120 days or more. The MHI retains the authority to open the application window, as needed, within the initial two years of the Scheme.
  1. S.O. No. 1363 (E) dated 15 March 2024
  2. Notification No. 19/2024-Customs dated 15 March 2024 r/w Sr. No. 526A of Notification No. 50/2017-Customs dated 30 June 2017
  3. Notification No. 20/2024-Customs dated 15 March 2024 r/w Notification No. 11/2018-Customs dated 2 February 2018
Our Comments
The new policy is set to bolster domestic manufacturing of electronic passenger vehicles by providing access to the latest technology and innovation. Opening the doors to reputed foreign players to invest and manufacture in the country should boost the Make in India initiative and strengthen the EV ecosystem, thus leading inter alia to high volumes of production and economies of scale, lower cost of production and trade deficit, increased job opportunities, as well as a reduction in imports of crude oil and air pollution.

It gives an opportunity not only to new global OEMs to enter the Indian market but also to existing ones looking to import their EV portfolio not currently available in the country. The Scheme should also allow established players to address challenges faced hitherto, particularly in areas like localization, supply chain management and technological integration.

This initiative, in addition to the Centre's FAME Phase II (which aims to promote purchase of EVs and the development of charging infrastructure), PLI-Auto and PLI-Advanced Chemistry Cell (ACC) Schemes, and the State EV policies (currently present in 22 States), is a testament to India's focus to transition from conventional Internal Combustion Engine (ICE) powertrain to a more efficient and decarbonized EV technology.
 
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