[Answered] Evaluate the impact of the recent policy approved by the Union government to promote India as a manufacturing hub for electric vehicles (EVs). Discuss the potential benefits and drawbacks of reducing import duties as a strategy to attract foreign investment in EV manufacturing. [250 words] [15 Marks]

Recently, the Union Government approved a policy to promote India as a manufacturing hub for Electric Vehicles (EVs) with an investment set at ₹4,150 crore. The central goal of this policy is to enable transitioning to localized production in a commercially viable manner and plan as per local market conditions and demand.

Impact of recent policy

• Attracting Foreign Investment: Established EV manufacturers like Tesla may find India more alluring as a location if import duties on EV components are lowered. This would provide much-needed resources and experience.
• Knowledge Transfer: Foreign investment has the potential to result in knowledge transfer, which enables Indian businesses to grow their own EV capacities and establish a strong local EV ecosystem.
• Economies of Scale: Increased production volume due to a larger manufacturing base can lead to economies of scale, driving down production costs and making EVs more affordable for Indian consumers.

Benefits

• Reduced Reliance on Oil Imports: Increased EV adoption will decrease India’s dependence on imported oil, boosting energy security and reducing the trade deficit.
• Environmental Benefits: Widespread EV adoption will lead to cleaner air, especially in urban areas, positively impacting public health.
• Jobs: A flourishing electric vehicle (EV) sector has the potential to add new jobs at every stage of the supply chain, from production of batteries and parts to servicing and upkeep.

Drawbacks

• Impact on Domestic Industry: Lower import taxes on completed electric vehicles (EVs) may make it more difficult for current Indian EV producers to compete on pricing with more established firms.
• Quality Issues: If import restrictions are too lenient, a flood of inexpensive, subpar EVs may arrive, eroding consumer faith in the home EV market.
• Focus on Assembly, Not Manufacturing: Instead of establishing full-fledged manufacturing facilities, reduced taxes may encourage international companies to just assemble electric vehicles (EVs) in India using imported components. This restricts the possibility of job development and technological transfer.

Conclusion

The government must ensure that Foreign manufacturers must consider local circumstances, like the environment, lack of charging infrastructure, range anxiety, and limited number of products in the affordable range, roads, and usage conditions before availing benefits from the recent EV policy.