New EV Policy permits state-offered incentives for investments

Liberal EV policy

The Centre has announced a liberal EV policy which allows States to offer incentives to attract foreign investments during Elon Musk’s visit later this month.

This policy is for all investors on the lookout, without any company-specific concession. However, the States may offer incentives such as land at a concessional rate to attract foreign investments during the Tesla CEO’s visit. Competition among the states to attract foreign investment proves to be a healthy feat, enhancing the ease of business.

Two industrial States each in Western and Southern India Gujarat, Maharashtra and Tamil Nadu engage to host Tesla’s proposed manufacturing unit, primarily those mentioned earlier for they are coastal states with ports.

The policy asserts the investment commitment made by an interested company to be backed up by a bank guarantee in place of the waived customs charge, and the bank guarantee will be used if the scheme’s minimum investment requirements and domestic value addition (DVA) are not met. It also gave a three-year timeframe to global investors for setting up a manufacturing facility and starting commercial production of EVs in India.

The strategy states that 25% localization is anticipated in the third year, and the corporation must attain 50% DVA within five years or sooner.

With a minimum value of $35,000 (about ₹29 lahks) and higher, vehicles would be subject to a 15% customs charge for a total of five years, provided the manufacturer establishes production facilities in India within three years. This policy is designed to safeguard domestic industry.

Tesla plans to send a team to India during the third week of April to look for potential locations for its massive manufacturing project, which aims to produce cars in India for the developing globe.

It was revealed a week later that Musk will lead the group. “Proactive approach of states will help the company in making a decision. However, a final call will be taken by it based on various factors such as cost of production, law and order situation and infrastructure facilities,” one of the two added, saying that Gujarat, Maharashtra, Telangana and Tamil Nadu could be competing for the investment.

“Tesla may initially invest $2-3 billion in setting up a plant in India to cater to the region’s demand. It wanted concessional duty on EV imports during the gestation period, which has been addressed by the EV policy released last month,” the official said.

On the other hand, several other foreign car manufacturers want to invest in India, provided they also be allowed to import EVs by reducing customs duty by 15% provided they invest a minimum of $500 million to set up a manufacturing plant.

“Multiple firms have expressed interest in setting up a manufacturing plant in India because it offers a cost-effective manufacturing base, a large market, a rule-based stable political regime and a favourable policy framework,” an official said.

In March 2024, The Centre unveiled the new electric vehicle (EV) policy, including tax breaks. This is anticipated to give a significant boost to businesses like Vinfast and Tesla that intend to launch in India, which addresses their demand while protecting the national interest.

“This will provide Indian consumers with access to latest technology, boost the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to high volume of production, economies of scale, lower cost of production, reduce imports of crude oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment,” the commerce ministry said in a statement while announcing the policy that day.

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