Natural Growth of India’s EV Sector to Avoid Dependency on China

Natural Growth of India’s EV Sector to Avoid Dependency on China

Sub :Eco

Sec: External sector

• GTRI Recommendation:
  • India should allow the electric vehicle (EV) sector to grow naturally without heavy reliance on incentives.
  • This approach would prevent India from becoming an “EV colony” for China.
• Challenges for India’s EV Adoption:
  • 80% of electricity in India is generated from fossil fuels like coal.
  • Frequent power cuts create additional hurdles for large-scale EV adoption.
  • Dependency on imports for making EVs, including batteries and critical minerals, poses a significant challenge.
• Global EV Market Shift:
  • The global EV market is undergoing a seismic shift due to high tariffs and import restrictions imposed by the US, EU, and Canada on EVs and parts from China.
  • These regions account for 50% of China’s EV exports, leading China to shift production to ASEAN countries and target India.
• Risks of Chinese Imports:
  • Chinese production units in ASEAN would still depend on 70-80% imports from China for parts, including batteries.
  • Thailand is already facing challenges with rising imports and reduced sales for established manufacturers due to Chinese production.
• Risk of EV Dumping in India:
  • As access to developed markets becomes difficult for China, there is a risk that China may dump excess EVs in India.
• GTRI’s Suggested Strategy:
  • India should focus on capturing leadership in the next phase of EVs, particularly through advanced battery technologies.
  • Investment should be increased in research and development (R&D) for new batteries, battery recycling infrastructure, and clean energy sources to power EV charging stations.
• Experts View:
  • The global EV market is set to face turbulence due to several trends:
  • Countries are offering subsidies, tax benefits, and other incentives to encourage EV adoption.
  • The availability of critical minerals like lithium, cobalt, and nickel will impact the growth of the EV industry positively.

New Electric Vehicle Policy:

• Duty Reduction for EV Imports:
  • Customs duty rate reduced to 15% for Completely Knocked Down (CKD) units of EVs with a minimum CIF value of USD 35,000 or above.
  • The duty reduction is applicable for a total period of 5 years.
• Import Cap and Investment Prerequisites:
  • The policy caps the number of imported EVs at 8,000 units per year.
  • Manufacturers must invest a minimum of Rs 4,150 crore (∼USD 500 Mn) to avail duty concessions.
  • There is no ceiling on maximum investment, encouraging substantial capital infusion.
• Manufacturing and Value Addition Requirements:
  • Manufacturers must set up operational facilities within 3 years and achieve a minimum domestic value addition (DVA) of 25%, escalating to 50% within 5 years.
  • DVA is the share of value added to goods and services produced domestically for export.
• Maximum Import Allowance:
  • If investments exceed USD 800 Mn, up to 40,000 EVs can be imported, with a maximum of 8,000 units per year.
• Duty Limit:
  • The total duty waived on imported EVs will be capped at either the investment made or Rs 6,484 Cr, whichever is lower.
• Bank Guarantees:
  • The bank guarantee will be returned upon achieving 50% DVA and making an investment of at least Rs 4,150 crore or to the extent of duty foregone in 5 years.

Impact of the Policy:

• Aims to attract global players like Tesla by offering investment incentives and import duty reductions.
• Global EV manufacturers had been advocating for tariff concessions to set up manufacturing plants in India.
• India’s position as the world’s third-largest automobile market further underscores the potential for the EV sector.