Centre May Tweak EV Manufacturing Policy Post US Tariff Clarity: Report

SUMMARY

The Centre is open to revise the EV manufacturing policy to attract global manufacturing players

India is currently in discussions with the US regarding the proposed BTA which will include tariffs, non-tariff barriers, and customs facilitation

Currently the proposed scheme allows EV manufacturers to set up manufacturing facilities in India with a minimum investment of $500 Mn

The Centre is reportedly open to modifying its Scheme to Promote Manufacturing of Electric Passenger Cars in India (SMEC) based on the outcomes of the Bilateral Trade Agreement (BTA) with the US and other free trade agreements.

SMEC, announced in March 2024 is yet to take effect. As per the scheme, approved EV manufacturers can set up manufacturing facilities in India with a minimum investment of $500 Mn to make EV four-wheelers. Additionally, the scheme puts a duty rate of 15% on imported EVs.

If the BTA discussions lead to setting tariffs on imported cars to 15% along with specified investment numbers, the government may revise the policy to attract global manufacturing players, Business Standard reported, citing an official close to the matter.

It is pertinent to note that India is currently in discussions with the US regarding the proposed BTA, which will include tariffs, non-tariff barriers, and customs facilitation. If the agreement materialises, both the countries will be expected to cut down or eliminate custom duties to ease the trade.

Besides, India is also in talks to ink free trade agreements with several countries including the UK, Norway and Belgium.

A Deep Dive Into India’s EV Manufacturing Scheme

The SMEC scheme aims to attract global EV manufacturers to invest in India’s rising EV market.

During the announcement of the scheme last year, the government had said, “The scheme will also help put India on the global map for manufacturing of EVs, generate employment and achieve the goal of “Make in India.”

Apart from minimum investment amount and import tariff rates, the scheme requires manufacturing units to be operational within 3 years from the date of approval by the Ministry of Heavy Industries (MHI) and achieve a minimum domestic value addition (DVA) of 25%.

Within 5 years of setting up the facility, the company should achieve 50% DVA.

While the scheme is receiving global traction, giants including Tesla and VinFast still battle India’s high EV import rates.

Earlier this week, Tesla’s CFO Vaibhav Taneja said that India’s current tariff structure is a roadblock for its India entry. It is pertinent to note that India charges a 100% tariff on imported cars with a CIF (cost, insurance and freight) value of over $40,000 (over INR 34 Lakh).

Besides, Vietnamese EV major VinFast is mulling to open its India plant in Tamil Nadu by the end of June this year. This plant is a part of VinFast’s $2 Bn investment in the country with an initial $500 Mn committed in the first five years.