Lower import duty for Tesla in India if…: Centre eyes big push for EVs

The Indian government may allow a lower import duty on electric vehicles (EVs) from manufacturers like Tesla is there is an assurance on plans of local manufacturing and local sourcing in the coming times. At present, an import duty of 100 per cent on electric car models that cost upwards of $40,000 means these would be significantly more expensive if brought to India as compared to prices in other markets.

The Centre has made no secret of its intention to have vehicle manufacturers set up local production facilities instead of importing to India and selling to customers here. This is especially true for EV manufacturers as the government wants to quicken the rate of adoption for zero-emission vehicles here. Now, a report in the Times of India states that the government is mulling reduction in import tax for ‘sophisticated vehicle manufacturers like Tesla' based on assurances of local production and local sourcing in the future.

If the plans fall into place, Tesla in particular stands to gain enormously. The world's leading EV manufacturer has been eyeing the Indian car space for some time now but has thus far been put off by the high import tax structure on fully-built units that are shipped into India. CEO Elon Musk has expressed his desire for Tesla to play in India as well but has also expressed reservations against the high import tax.

Why does India impose high import tax on cars?

The Indian government wants to popularise EVs in the country and has time and again underlined the many benefits of such vehicles, from significantly lowering emissions to bringing down dependence on imported fuel. But the government is also determined to bolster local manufacturing across segments and industries, automotive included. Union Minister Nitin Gadkari had explained last year that Tesla is welcome to set up manufacturing in India instead of importing units from its Shanghai facility. Making in China and selling here is not a good proposition," he had said in April of last year.

Local manufacturing offers a number of benefits which range from employment creation to spurring overall economic growth. As such, a high import tax on high-end vehicles serves as a key factor pushing manufacturers to manufacture locally instead of shipping in units.

What is the import duty on vehicles across the world?

India imposes 100 per cent import tax on cars that cost above $40,000 and 70 per cent on all other cars. In comparison, the United States imposes import tax of just 2.5 per cent while it is five per cent in Australia. Canada levies duty of around 6.1 per cent while in France, it is at 10 per cent. The figures are higher but still less than India in Saudi Arabia (15 per cent), China (23 per cent) and Brazil (35 per cent)

Who stands to benefit from lower import tax on EVs in India?

While Tesla is likely to benefit the most if a temporary cut in import tax is allowed, other luxury players like Audi and BMW too could stand to gain. Both brands already have EVs in India but these come in via the import route and are essentially ways to test an evolving mobility scene. Mercedes-Benz locally assembles some of its EVs for the Indian market.

But for others like Tata Motors and Mahindra, a lower import tax is likely to be a setback because many have committed to big investments for local manufacturing. If imported models from rival brands benefit from lower import duty, there is a strong possibility that many potential buyers move towards such offerings.