Currently, India imposes high import duties on fully built cars, including EV in order to protect its domestic auto industry.
The current electric vehicle manufacturing policy of India is open to modifications in order to align with the India US trade negotiations. Back in March 2024, the Scheme for Promotion of Manufacturing of Electric Passenger Cars in India (SPMEPCI) was launched with an aim to attract global and domestic electric vehicle manufacturers to India, so that they could set up their production units here. However, the scheme is yet to be operationalised.
Under the SPMEPCI, discounted import tariffs were planned for high end EV companies who were ready to invest in India. As of now, India imposes high import duties on fully built cars, including EV in order to protect its domestic auto industry. A senior official told Economic Times that the guidelines are expected to be launched in few weeks as final approvals from few ministries are yet to be received. After the regulatory framework is set out by the guidelines, applications from EV companies can be invited. However, following the finalisation of the India US trade agreement, the incentives can be modified.
Applicants need to invest a minimum of Rs 4,150 crore in EV manufacturing under SPMEPCI and in return, they can import high-end electric cars at a reduced import duty rate of 15 percent, instead of the usual rate. However in order to qualify that, companies also need to achieve 25 per cent domestic value addition (DVA) within three years, which additionally needs to be scaled up to 50 per cent within five years.
However the scheme now looks less attractive amid recent discussions on lowering import duties on cars and added pressure from U.S. President Donald Trump. Few days ago, Tesla’s Elon Musk also flagged India's high import tariffs as a key barrier for their company, which is trying to enter the market.
Such discussions come in the backdrop of the ongoing India-U.S. bilateral trade negotiations, where import duties remain a major sticking point. As per officials quoted by ET, if India agrees to reduce import tariffs on cars as part of the trade deal, it can also revise the SPMEPCI in order to enhance incentives for companies that invest in local manufacturing.
Presently, India imposes 100 percent import duties on fully built cars so that it can protect its domestic auto industry. Even though, the US President introduced reciprocal tariffs to boost U.S. manufacturing few weeks ago, he has imposed a 90 days pause on some measures. However, he continues to be of the opinion that India's import taxes are way higher and that it continues to make American exports less competitive.