Indian government expects a good response from many companies on EV policy

  • The Indian government has used tariff tweaks without actually spending any money to seek commitments from manufacturers to set up a base in India.
The Indian government has used tariff tweaks without actually spending any money to seek commitments from manufacturers to set up a base in India. (Bloomberg)
The Indian government has used tariff tweaks without actually spending any money to seek commitments from manufacturers to set up a base in India.

The government on Saturday said India is expecting a good response from many automobile companies on its electric vehicle (EV) policy, which was released in March to attract global players like Tesla.

Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT) Rajesh Kumar Singh said that in the policy, the government has used tariff tweaks without actually spending any money to seek commitments from manufacturers to set up a base in India.

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"Everybody talks about one company (US-based EV major Tesla), but we are expecting responses from many companies to that policy," Singh said here at CII's annual business summit.

On March 15, the government approved an electric-vehicle policy, under which duty concessions will be given to companies setting up manufacturing units in the country with a minimum investment of USD 500 million, a move aimed at attracting major global players like Tesla.

As per the policy, a company will get three years to set up manufacturing facilities in India, and start commercial production of e-vehicles, and reach 50 per cent domestic value addition (DVA) within five years at the maximum.

The companies that would set up manufacturing facilities for EV passenger cars will be allowed to import a limited number of cars at lower customs/import duty of 15 per cent on vehicles costing USD 35,000 and above for five years from the date of issuance of the approval letter by the government.

At present, cars imported as completely built units (CBUs) attract customs duty of 70-100 per cent, depending on engine size and cost, insurance and freight (CIF) value less or above USD 40,000.

The policy seeks to promote India as a manufacturing destination for EVs and attract investment from reputed global EV manufacturers. According to the scheme, the company will be allowed to import CBUs of e-4W manufactured by them at a reduced customs duty of 15 per cent, subject to the conditions.

Singh also said that they have also managed to get commitments for investments in India in the tyre sector from two major multinational firms.

"Two major multinationals came to us with certain products that were on a restrictive (import) list and they wanted that (those goods) to be allowed for imports. We told them that okay, we will allow you to import but we want these product lines to be manufactured in India. Once they gave us those commitments, we allowed those relaxations," he added.

India has imposed mandatory quality control norms for certain types of tyres in India, besides putting some on the licence list to boost domestic manufacturing.

Citing the example of EVs and tyres, he said, "there are other ways to ensure that the kind of goals that we have under the PLI (production linked incentive) scheme for investments can be met even by prudent use of tariff-and non-tariff policies".

Talking about India and the four-nation European bloc EFTA (European Free Trade Association) free trade agreement, which was signed in March here, the secretary said this is a first-of-its-kind pact where investment commitments are there.

"Those commitments are going to be monitored and there is a provision even to claw back the market access if those commitments are not met," he said.

On March 10, India and EFTA signed a free trade agreement (FTA) under which New Delhi received an investment commitment of USD 100 billion in 15 years from the grouping while allowing several products such as Swiss watches, chocolates and cut and polished diamonds at lower or zero duties.

The EFTA members are Iceland, Liechtenstein, Norway, and Switzerland.

He added that several FTA negotiations are under way and "my own anticipation is that you (industry) will see India becoming a little less conservative when it comes to these FTAs".

He suggested that the industry should prepare itself for a lower tariff/customs duties regime in the long run.

In a trade agreement, two or more trading partners either significantly reduce or eliminate customs duty on maximum number of goods traded between them. Developing countries like India has slightly higher customs duties on sectors like agri, alcoholic beverages and automobiles.

"Of course while doing so, you (domestic industry) have every right to expect that any distortionary and any inversion in our tax regime should be corrected," he said adding there are many commodities where both on the GST (Goods and Services Tax) side and on the customs duty side, there are inverted duty structures.

Inverted duty structure affects competitiveness and export capabilities of Indian industries. This structure refers to taxation of inputs at higher rates than finished products that result in the build-up of credits and cascading costs.

DPIIT is doing a cross-sectoral study to ensure that "both in the GST Council and through the finance ministry, we try to rationalise and ensure that those inversions are removed to improve the competitiveness of our manufacturing sector," Singh said.

First Published Date: 19 May 2024, 08:56 AM IST

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