EV import policy can face execution challenges

Source-This post on Electric Vehicle has been created based on the article “Electric mobility – EV import policy can face execution challenges” published in “Business Standard” on 19 March 2024.

UPSC Syllabus-GS Paper-3– Changes in Industrial Policy and their Effects on Industrial Growth.

News– The government has recently announced the reduction on import duties on electric vehicles (EVs) if the EV manufacturer produces vehicles in India.

What are the provisions of trade policy regarding manufacturing of electric vehicles?

1) Objective-To position India as a manufacturing hub for electric vehicles (EVs) with cutting-edge technology.

2) Investment Threshold- A minimum investment of ₹4150 Crore (approximately USD 500 Million) is required to participate. There’s no upper limit on investment, encouraging large-scale manufacturing facilities.

3) Timelines and Localization– Companies have 3 years to set up manufacturing plants in India and begin EV production. They must achieve a domestic value addition (DVA) of 25% within 3 years and 50% within 5 years.

4)Import Duty Concessions- To incentivize participation, companies can import a limited number of EVs at a concessional customs duty of 15%. For ex-for models of electric cars with a combined cost, insurance, and freight price in India of $35,000 or above, the tariffs will be slashed from 100 to 15%.

Read more- Adoption of EVs: Challenges and Solutions

What are the issues with the new policy?

1) Entry of Chinese Giant-It is possible that China’s BYD which dominates the Electric car market could enter India and gives stiff competition to domestic manufacturer.

2) Lack of clarity-To build a global value chain, it is important that not only the tariffs on the final product be reduced, but also on intermediate goods.There is no clarity on reduction of important duties for intermediate goods.

What are the challenges in execution of this policy?

1) Monitoring-It will be difficult to track the cooperation of a company that has received a reduction in duties. It is possible that the company may not fulfill its commitment.

2) Lack of effective guidelines-There will be delays in the investment and meeting of localization requirements by the companies that have been granted concessions. There is no clarity on how the government deals with firms that ultimately fail to fulfil investment targets.

3) Issue with concession-based mechanisms-As per experts, trade policy requires overall low and stable tariffs for sectors that are relevant for entering global value chains. Such concession-based mechanisms are always difficult to track and make policies less consistent.

Question for practice

What are the provisions of the new trade policy? Highlight the challenges in its implementation?