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The Ministry of Heavy Industries notifies a scheme to promote manufacturing of EVs in India

The Ministry of Heavy Industries notifies a scheme to promote manufacturing of EVs in India

The Ministry of Heavy Industries notified a scheme to promote the manufacturing of electric passenger cars on 15th March 2024 (EPV Scheme). The EPV Scheme inter alia provides a concessional import tariff rate of 15% for global EV manufacturers that is contingent upon them setting up Electric Passenger Vehicle (EPV) manufacturing facilities in India with a minimum investment of USD 500 million over a period of 5 years. The EV manufacturer must achieve a minimum domestic value addition of at least 25% within 3 years and at least 50% within 5 years from the date of issuance of the approval letter. To safeguard the domestic EV industry, the EPV Scheme does not incentivize the import of EVs worth less than USD 35000 and caps the number of such imported EVs at 8000 per year.

The EPV Scheme is in line with other initiatives taken by the Government of India to promote the EV industry such as the PLI Scheme for Automobile and Automotive Components (PLI Auto), the PLI Scheme for Advanced Chemistry Cell (PLI-ACC), the Scheme for Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (FAME) along with the EV policies by various states.

Key Features:

  • Approved applicants to set up manufacturing facilities in India with a minimum investment of USD 500 million.
  • Operationalization of manufacturing facilities shall be made operational within a period of 3 years from the date of issuance of the approval letter.
  • Approved EPV manufacturers to achieve a minimum domestic value addition of 25% within 3 years and 50% within 5 years from the date of issuance of the approval letter.
  • Import of completely built-in units of EPVs manufactured by approved EPV manufacturers at a reduced customs duty of 15% subject to the conditions as per the EPV Scheme.
  • EPVs can initially be imported with a minimum CIF value of USD 35,000, at a concessional duty rate of 15% for a period of 5 years from the date of issuance of the approval letter.
  • The maximum number of EPVs allowed to be imported at the concessional duty rate of 15% shall be capped at 8000 per year and carryover of unutilized annual import limits would be allowed.
  • The maximum number of EPVs to be imported under the EPV Scheme shall be such that the total duty foregone will be limited to either the maximum duty foregone per applicant (limited to Rs.6,484 crore) or the committed investment of the applicant, whichever is lower.
  • The lower customs duty of 15% would be applicable for a total period of 5 years (from the date of issuance of approval letter) subject to setting up of manufacturing facilities in India within 3 years (involving a minimum investment of Rs.4,150 crore/USD 500 million). To avail of lower customs duty, the approved applicants will be required to submit import applications on an annual basis.
  • The applicant’s commitment to set up manufacturing facilities and achievement of DVA shall be backed by a bank guarantee equivalent to the total duty to be forgone, or Rs 4150 crore, whichever is higher, during the scheme period.
  • The bank guarantee will be invoked in case the approved applicant does not achieve the requirements on a minimum investment of 500 USD million within 3 years or domestic value addition or investment less than the duty forgone/ USD 500 million, whichever is more.
  • Implementation guidelines for the EPV scheme will be issued separately.
  • Tenure of the EPV scheme will be 5 years or as notified by the Government of India.
  • The EPV Scheme will be implemented through a Project Management Agency which will be responsible for providing secretarial, managerial, and implementation support and carrying out other responsibilities as assigned by the Government of India from time to time.
  • Applicants shall furnish an undertaking on integrity compliance duly signed by its authorized signatory along with the application form.
  • The companies whose credentials have been considered for selection of applicant under the EPV Scheme shall not be allowed to dilute their shareholding (direct or indirect) in the applicant during the tenure of the Scheme.
  • In case benefits availed under the EPV scheme have been obtained by misrepresentation or falsification of information, the approved applicant will have to refund the duty foregone, along with interest apart from action that may be undertaken under law.

Eligibility Criteria:

The Applicant company/group of companies will have to satisfy the following requirements:

  • Incorporation under the Companies Act in India.
  • Should be engaged in the automotive sector and/or manufacturing.
  • Global group revenue should be at least a minimum of INR 10,000 crore.
  • Global investment of the Company or its Group Companies in fixed assets should be at least INR 3,000 Crore.
  • Minimum investment commitment in India of INR 4,150 crore/USD 500 million within 3 years.
  • Domestic value addition criteria during manufacturing of at least 25% within 3 years and at least 50% within 5 years from the date of issuance of the approval letter.

Application Deadline:

  • Applications will be invited within 120 days (or more) of notification of the EPV scheme.
  • Further, the Ministry shall have the right to open the application window, as and when required, within the first 2 years of the Scheme.
Our Take

The EPV scheme seeks to incentivize high-end foreign EV manufacturers like Tesla to establish manufacturing facilities in India by allowing the import of a limited number of EPVs at a concessional duty rate. A template for attracting foreign manufacturers into India has already been established through the Production Linked Incentive scheme for electronic manufacturing which has attracted the likes of Apple to set up their manufacturing facilities in India. This has led to Apple exporting USD 10 billion worth of iPhones from India during FY 24.

The EPV scheme also protects the interests of the domestic EV manufacturers allowing a concessional import duty rate of 15% for premium EVs worth USD 35000 for a period of 5 years from the date of issuance of the approval letter. Further, the maximum number of EPVs allowed to be imported at the concessional duty rate of 15% shall be capped at 8000 per year. While it is laudable that the Government is seeking to attract EV manufacturing in India through policy incentives, it should also consider focusing on alleviating some of the chronic problems of the manufacturing sector to make the domestic industry competitive with its foreign counterparts. This includes liberalizing restrictive labor laws, providing land and power to industries at concessional rates, ensuring an abundance of skilled labor, etc.

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