Why in the News?

The Ministry of Heavy Industries notified guidelines of the Scheme to Promote Manufacturing of Electric Passenger Cars in India.

What’s in Today’s Article?

• About the Scheme (Background, Key Provisions, Ecosystem Impact, Criticism, Way Forward)

India’s Strategy to Accelerate EV Manufacturing

• India has taken a bold step to bolster its electric vehicle (EV) sector by unveiling a policy aimed at encouraging domestic manufacturing while permitting limited imports of fully built electric cars at reduced import duties.
• This Scheme to Promote Manufacturing of Electric Passenger Cars, announced by the Ministry of Heavy Industries (MHI), is part of a broader effort to enhance clean mobility and industrial competitiveness.

Key Provisions of the Scheme

• The central feature of the policy is a sharp reduction in customs duty on completely built units (CBUs) of electric cars, from the current 70-100% to just 15%.
• This duty cut applies to vehicles priced at or above $35,000 (approximately Rs. 29.75 lakh) for a five-year period. However, this benefit is contingent on manufacturers investing a minimum of Rs. 4,150 crore in India over three years.
• These investments must result in domestic value addition (DVA) of at least 25% within three years, increasing to 50% by the fifth year.
• A maximum of 8,000 vehicles can be imported annually under the concessional duty regime, and the total foregone customs duty is capped at Rs. 6,484 crore.
• MHI estimates that an imported EV under this scheme would incur a landing cost of Rs. 36 lakh, significantly lower than before.

Assessing Ecosystem Impact

• The policy aims to strike a balance between short-term affordability for Indian consumers and long-term self-reliance in manufacturing.
• According to FADA data for FY 2025, EVs made up 7.8% of total vehicle sales, with three-wheelers leading at 57% within their segment, followed by two-wheelers (6.1%), passenger vehicles (2.6%), and commercial vehicles (0.9%).
• The International Energy Agency (IEA) identified India as the largest global market for electric three-wheelers in 2024, underscoring the importance of focusing not only on private four-wheelers but also on mass and last-mile mobility.
• Critics, however, caution that the scheme could dilute India's domestic manufacturing ambitions if foreign firms are not compelled to transfer core technologies.
  • Countries often resist exporting their technological edge, potentially reducing India to a component assembly hub.
• Another critic emphasized the importance of innovation, R&D, and skilling, elements that powered China and South Korea's emergence as global EV leaders. Without these, India may fail to build a truly indigenous ecosystem.

Concerns Over Industrial and Employment Policy

• Indian EV manufacturers, notably Tata Motors and Mahindra, have expressed reservations about the scheme.
• In December 2023, Tata opposed Tesla’s demand for lower import duties, arguing that such a move would disrupt an investment climate based on a stable, protectionist tax regime.
• IEA data revealed that over 80% of electric cars produced in India in 2024 came from local manufacturers, while Chinese imports contributed less than 15% to EV sales, thanks in part to the earlier high-duty barriers and availability of affordable domestic options.
• Analysts argue that the new policy may tilt the scale in favour of foreign capital, thereby impacting domestic players and job creation.
• As EVs typically require fewer moving parts than traditional internal combustion engines, the shift could also mean fewer jobs in traditional manufacturing sectors unless accompanied by new skilling initiatives.
• Furthermore, S&P Global Mobility has pointed out that India’s continued reliance on imported batteries and components, along with the high upfront cost of EVs (20–30% more than ICE vehicles), remains a barrier to mass adoption and localisation.

Path Forward

• Experts suggest that India’s EV roadmap must be reoriented toward building domestic capacity, fostering innovation, and ensuring broad-based industrial growth.
• Rather than focusing primarily on attracting foreign OEMs, policies should invest in research institutes, encourage public sector participation, and fund start-ups in the EV supply chain.
• A critical challenge will be to integrate India's climate commitments with its manufacturing strategy.
• As India targets net-zero emissions by 2070, it must simultaneously expand clean mobility options and ensure they are accessible, affordable, and built with local value addition.