The Indian government’s recent announcement of a new Electric Vehicle (EV) policy, offering a concessional rate of duty of 15 per cent, has generated anticipation of attracting global EV players into the country, including Tesla Inc. led by Elon Musk. However, the benefits of this policy may not extend uniformly to all countries, particularly affecting Chinese electric vehicle manufacturers.
The policy, aimed at stimulating EV manufacturing and adoption, requires a minimum investment and a three-year timeline for setting up manufacturing facilities in India to qualify for the lower import duty rate of 15 per cent. However, Chinese companies may face hurdles in enjoying these concessions due to national security concerns associated with foreign direct investment (FDI) from certain countries.
According to the FDI policy, Chinese companies may not be able to benefit from the concessions under the EV policy as their investments would need to come through the government route, subject to stringent scrutiny. This requirement stems from concerns about national security, prompting Chinese companies to navigate additional regulatory hurdles.
One prominent example is BYD, a leading Chinese electric vehicle manufacturer, which may be excluded from availing the benefits of the EV policy due to its inability to provide the FDI commitment required. The company’s inability to fulfill this criterion puts it at a disadvantage, potentially subjecting it to the existing duty rates of 70 and 100 per cent.
India’s FDI policy underwent amendments, particularly under Press Note 3 issued in April 2020, aimed at preventing opportunistic takeovers or acquisitions of Indian companies by entities from countries sharing a land border with India. Under these rules, investments from such countries can only proceed through the government route, necessitating thorough scrutiny.
The reluctance of India to grant concessions to Chinese EV makers through its newly unveiled policy assumes significance given China’s dominant position in the global EV market. China leads in EV production, sales, and exports, accounting for a significant portion of global electric vehicle purchases.
According to the International Energy Agency (IEA), China stands as the largest producer and exporter of electric vehicles, representing over 35 per cent of outbound shipments in 2022. Moreover, China led global electric car sales in 2022, surpassing its 2025 target for new energy vehicle sales.
India’s cautious approach reflects broader geopolitical and economic considerations, balancing the imperative for technological advancement and industrial growth with national security concerns and diplomatic relations with key stakeholders in the global EV landscape.
