As Prime Minister Narendra Modi embarks on a visit to the US this week to meet Donald Trump and his men, the government is finalising guidelines for expanding the scope of a policy, which allows global automobile companies to import expensive cars at a concessional import duty rate in lieu of eventually manufacturing in India. An industry source confirmed that the Ministry of Heavy Industries has finished stakeholder consultations and is expected to release the guidelines for the Scheme for Promotion of Manufacturing of Electric Passenger Cars (SPMEPC). Though the scheme was notified almost one year back, detailed guidelines have not been issued till now since not even one applicant came forward. This lack of interest compelled the ministry to expand the scope of the policy, which had mandated concessions for only greenfield investments, to now also include brownfield investments. The MHI has now circulated a draft of the guidelines of the amended policy, under which existing OEMs – global marquee names which are already manufacturing in India – can also participate and avail of concessional import duty on their respective high-end cars. One of the provisions of these draft guidelines, seen by ETAuto, states that in case the investment being showcased by the OEM is made on a brownfield project, “a clear physical demarcation with the existing manufacturing facility (facilities) should be made”. The draft guidelines also state that the investment under this scheme must be confined to the applicant’s approved plant location only, though charging infrastructure set up by the OEM can be placed at different locations in the country. The source quoted above said that the draft guidelines have been circulated among stakeholders and OEMs have given their comments. “The guidelines we are now waiting for are about how the government will calculate the domestic value add (DVA) for brownfield investments. The expanded policy will help global car makers to test their high-end electric vehicles in the Indian market for three years, before they decide whether to launch these vehicles in the domestic market. For this period, they want a concessional import duty regime which the government has agreed to,” this source said.
The expanded policy, if it is notified, will allow German OEMs like BMW and Mercedes, others including Toyota and Hyundai to use the lower import duties to test the domestic market for high-end CBUs. In turn, they can invest in new lines at their existing facilities – Toyota in Aurangabad, Hyundai in Pune for example – to comply with the manufacturing mandate. Toyota has already indicated a mega investment in setting up a manufacturing plant in Aurangabad; Hyundai has acquired the GM facility in Pune.
Musk and more sops
The initial scheme (which only sought greenfield investment in lieu of concessional import duties) was devised keeping Elon Musk’s Tesla in mind; could it be coincidence or karma that Modi is expected to meet Musk again this week just as the policy contours are getting redrawn? Will they again be expanded to accommodate new demands from Musk?
Musk has blown hot and cold over setting up a manufacturing facility in India despite the SPMEPC concessions and a second industry source said that he may be pushing for more sops than just a concessional import duty for high-end cars. On the negotiation table may be permission to import more high-end cars than allowed at present for the first three years, before mandatory local manufacturing has to be done. A second source said that discussions could happen between the government and Musk over whether some of the parts needed to manufacture electric cars in India could be imported from China – so he may be seeking a tweak in the domestic value add (DVA) norms. “Musk is trying to negotiate whatever Tesla did not get the first time round. It is possible that Tesla gets some great benefits now that Musk is aligned with Trump,” this source said.
The outgoing Modi government had notified the SPMEPC just days before elections were called last March. The scheme allowed import duty of just 15% against the prevailing rate of 70% for completely built units (CBUs), as long as the importing entity committed to invest USD 500 million in setting up an Indian manufacturing unit within three years.
What happens to VinFast?
Vietnamese EV maker VInFast, which is already in the process of setting up a 50,000 units per annum manufacturing facility in Tamil Nadu, missed qualifying under SPMEPC by a whisker last year. The company has requested the government to extend the concessions meant for Tesla and other greenfield investments to VinFast too. But the first source quoted above said that VinFast may not benefit much under the new, expanded policy.
The policy
The policy allows import of cars with CIF value of USD 35000, which attract 70% duty currently (100% is for cars over USD 40,00) at 15% duty as long as they set up a manufacturing facility in India within three years. Another stipulation is that such companies should achieve a localisation level of 50% by the fifth year. The annual imports of e-vehicles under this policy have been capped at 8000 units.
To qualify, an OEM should commit an investment of 500 million USD (Rs 4150 crore), show localisation level of 25% within three years and 50% within five years. This will entitle the company to import e-vehicles of CIF value USD 35,000 (about Rs 29 lakh) and above at a concessional customs duty rate of 15% for five years.
Also, the total number of EVs which can be imported under the new policy would be determined by “the total duty foregone or investment made, whichever is lower, subject to a maximum of Rs 6484 crore”. And lastly, the investment commitment made by each player who agrees to set up a manufacturing facility would have to be backed by a bank guarantee, in lieu of the customs duty foregone.
