The government of India has announced a strategic auto policy to make India a global manufacturing hub for the electrical vehicles. According to the policy the global companies will get incentives for setting up manufacturing plants in the country.
The policy reduces the customs duty rate to 15% for EVs with a minimum CIF (Cost, Insurance, and Freight) value of USD 35,000 or above for 5 years.
The policy caps the number of imported EVs to 8,000 in a year. Manufacturers will have to invest at least Rs 4,150 crore (USD 500 Mn) in order to avail the concessions on duty.
The global EV companies coming to India will have to set up operational facilities within 3 years and achieve a minimum domestic value addition (DVA) of 25% within the same period, escalating to 50% within 5 years.
If the investment exceeds USD 800 Mn, up to 40,000 EVs can be imported, not exceeding 8,000 per year.
The bank guarantee will only be returned upon achieving 50% DVA and making an investment of at least Rs 4,150 crore.
The Indian government has introduced the EMPS 2024 to promote the purchase of electric two-wheelers (e2W) and three-wheelers (e3W). With a budget of Rs 5 billion, it will replace the FAME-2 scheme and will be effective from April to July 2024.
Not only that, the allocation of Rs 1 lakh crore corpus towards ‘Sunrise Domains’ will give a boost to the electric vehicle and clean energy segment.
The budget 2024 signalled a clear focus on reducing carbon emissions in the automotive sector.
The policy has brought India out of the deadlock and is a master stroke which will benefit both the consumers and the Indian industries
Abhijeet Sinha, Program Director – Ease of Doing Business & Project Director- NHEV
The Indian automobile industry has come a long way from the annual production of 40 thousand vehicles in the 1950s to 25.93 million in 2023. The early productions were confined to three major players – Hindustan Motors, Premier Automobiles, and Standard Motors. Expertise in this sector was mostly attained through trial-and-error method.
In the last 10 years, the country has emerged as an important player in the global automotive industry – the third largest in the Asia-Pacific region in 2021. In this year, the gross value added from the road transportation sector was the highest across India at around 3.3 trillion Indian rupees.
Expansion of roads coupled with sustained economic development, led to a rapid increase in the number of vehicles across the nation. These include two-wheelers, trucks, cars, buses, three-wheelers, and others that play a critical role in the economic development of the country.
Thanks to the infrastructural support in the form of roads and highways by the present dispensation, India’s automotive industry is poised to become the world’s third-largest by 2030. This sector is expected to grow from USD 100 billion in 2021 to USD 160 billion in 2027.
India produced 18 million vehicles in 2022. The country was also the largest producer of two and three-wheelers globally. Hero MotoCorp was the leading two-wheeler manufacturer. Maruti Suzuki has dominated the passenger vehicle segment with over 46 percent share. Meanwhile, Tata Motors held a strong grip in the commercial vehicle segment.
Rapid urbanization and rising incomes are likely to play a key role in this growth. By 2030, India will have over 500 million people living in cities. Further, around 60 million households will enter the consumer class by 2025.
While mini cars and hatchbacks will continue to maintain a dominant position, the majority of growth is expected to come from new segments such as compact SUVs, sedans, and luxury vehicles.
India is also emerging as a leader in electric vehicle (EV) adoption. The government’s National Electric Mobility Mission Plan (NEMMP) aims to facilitate long-term growth in the industry and reduce emissions and oil dependence.
Because of the advantages enjoyed by EVs over diesel and petrol vehicles, the market for EVs in India seems very promising.
The government’s Automotive Mission Plan 2016–26 sets a target of 12 percent contribution for automobile sector to India’s GDP.
Nitin Gadkari, Union Minister of Road Transport and Highways, recently said that India would become the number one automobile manufacturing hub by 2029.
He further pointed out that the key priority for the Centre in this direction are building a world-class road network, shift to alternative fuels, and the reduction in logistics costs. Gadkari emphasized on the importance of good infrastructure, water, power, transport, and communication for the development of capital investment, industry, and agriculture.
We have all products and all major players present in the country. The automobile industry will give strength to the Indian economy and we will be Atmanirbhar Bharat and we will be the third largest economy in the world in the next five years,” Gadkari was quoted by The Economic Times.
Nitin Gadkari, Union Minister of Road Transport and Highways
The minister said that the country’s national highway network would match USA by the end of 2024, and his ministry is constructing 36 expressways to reduce travel times between major cities.
Gadkari also said that he was not dependent on government funding for his infrastructure push, instead, he would provide an assured return of 8.05% per annum to small investors who invest in bonds.
The government also aims to diversify to alternate fuels, reducing the dependence on fossil fuel, whose import currently stands at ₹16 lakh crore per year. Gadkari disclosed that the government is working on a project with Indian Oil Corporation in Panipat where they are using rice straw to make ethanol and bio-bitumen.
So, our policy is very simple – diversification of agriculture towards energy powers, so that our farmers are no longer ‘anna daata’ but ‘urja data’, ‘bitumen daata’, and ‘hawaaii indhan daata’ sustainable aviation fuel
Nitin Gadkari, Union Minister of Road Transport and Highways
Challenges and counter measurements
The problem of deteriorating air quality and increasing congestion has been a cause for concern within the automotive industry. India has featured repeatedly in the list of most traffic-congested as well as most polluted cities in the world.
The government has taken several measures to deal with this menace. New emission standards were fixed and the taxes on electric vehicles were reduced by a reasonable margin as opposed to conventional vehicles.
To reduce noise pollution emanating out of the automobile industry, Gadkari said, “I am studying this and soon planning to make a law that the horns of all vehicles should be in Indian musical instruments so that it is pleasant to hear. Flute, tabla, violin, mouth organ, harmonium…,” Gadkari added.
With India on its way to overtaking China to become the most populous country in the world, the amount of traffic on narrow, partially developed roads could likely be a constant struggle.
These trends suggest a promising future for the Indian automobile industry. However, the actual growth will depend on various factors including economic conditions, government policies, and consumer preferences.
