Explained: How India's New EV Policy Treads Where PLI Scheme Doesn't
The new EV policy is not the country's first attempt at attracting global automobile companies to set shop in India.
India's new electric vehicle policy stands out from the previous one in how it incentivises local manufacturing with a 60% cut on import duties as a start.
The new EV policy is not the country's first attempt at attracting global automobile companies to set shop in India. The government launched the production linked incentive scheme for automobiles and auto components in 2021, and the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) in 2015.
The obvious advantage to a global company under the new EV policy is the 60% cut on import duties for completely built units in the first five years of their investment in India.
The government will offer a reduced import/customs duty at 15%, as opposed to current 70-100% duty, for a cap of 40,000 units over five years. This comes with the condition that the auto company commits an investment of a minimum $500 million, or Rs 4,150 crore, and sets up a manufacturing facility in India in the first three years.
The Key Differences
India's auto Production Linked Incentive or PLI was launched in 2021 and offers incentives on sales value for five fiscal starting from FY23 till FY27. The scheme has a budgetary outlay of Rs 25,938 crore, for incentives where the total incentive per group company(ies) was capped at Rs 6,485 crore.
The new EV policy, however, allows for reduced duty while the company sets up a manufacturing unit, unlike the PLI scheme which offers incentives on the sale of finished goods manufactured in India.
It will serve as a trigger for global companies to set up their manufacturing facilities in India, said Gulzar Didwania, a tax partner at Deloitte India.
Apart from offering incentives on the sale of manufactured units, the PLI scheme also mandated a 50% domestic value addition, which Gulzar said has been difficult for many PLI approved companies to fulfill due to availability of components in India.
While the policy doesn’t offer any extra incentive on the sale of manufactured vehicles, it allows for the import of CBUs at a concessional rate during the initial years.
It also helps global companies test the waters to understand the success on Indian roads, collect customer feedback, and commit to domestic manufacturing, investment and localisation, he told NDTV Profit.
The new EV policy is not without riders. The reduced import duty is not an unlimited cap.
"It is important to note that the actual duty saved cannot be more than the investment made," said Abhishek Jain, head of indirect tax and partner at KPMG. "Even the 8,000 units per year import cap is linked to investment made."
The new policy states that the duty foregone on the total number of EV allowed for import would be limited to the investment made or Rs 6,484 crore (equal to incentive under PLI scheme), whichever is lower.
The EV policy is also designed to not disrupt the existing market, according to Jain. It's also different from the FAME initiative in the market that it targets, as the scheme is largely for two-wheelers, three-wheelers and commercial/low value four-wheelers.
“...the minimum CIF value of $35,000 should, in fact, protect the domestic industry as there is no Indian EV priced at this range currently," Jain said.
The cost-insurance-freight value eligible for the import duty is set at a minimum of $35,000, or Rs 29 lakh, which falls under the luxury car category in India.
