Relevance: Electric Vehicles are the future of the automotive industry. A better policy for their promotion is required.
A reduction in Customs duty wouldn’t solely boost the Electric Vehicles (EV) sector, the government needs to adopt an integrated approach towards it.
Indian cities are among the most polluted in the world, and it makes sense for the government to push EVs as it would help curb vehicular pollution. The government of India has rolled out several initiatives over the past few years to increase the adoption of electric vehicles (EVs).
Considering this, foreign players are inclined to invest in the EVs sector but are restrained by the higher customs duties on the import of EVs. India imposes 60 percent duty on imported cars worth up to $40,000, and 100 percent on more expensive vehicles.
Government initiatives for EVs:
- The FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme and lowered goods and services tax on EVs.
- A deduction in personal income tax on the purchase of EVs.
- It is also providing incentives under the production-linked incentive scheme to help increase the production of batteries.
- In terms of reducing Customs duty, there is a case for progressively bringing it down for all cars.
Analyzing the decision to abolish custom duty on EVs:
- Abolition would make imports cheaper. There would be a surge in demand for EVs like Tesla. Further, the domestic industry would face considerable competition, thereby inducing them to improve the quality of EVs.
- However, on the flip side, India may fail to attract investment in the EVs sector. A high duty induces global firms to set up manufacturing plants in India, leading to the development of indigenous EVs manufacturing.
- Ola is already building capacity to manufacture e-scooters. India has a significant automotive manufacturing base and should be able to develop a value chain for EVs to a large extent.
- The government should avoid cutting duty only on EVs. Because it would go against the conventional automotive industry. It would reduce incentives for firms to produce better cars.
- For instance, firms may be discouraged to work on better technologies like hydrogen fuel cells, which are more environment-friendly. Currently, EVs are predominantly powered by coal.
Other issues with EVs:
- Robust charging infrastructure: According to a new report, India will need about 400,000 charging stations to serve about 2 million EVs that could possibly hit its roads by 2026. India currently has about 1,800 charging stations.
- Transparent Pricing of Power: Although the government has issued guidelines for charging and de-licensed charging activity, this may not be enough. At a broader level, transparent pricing of power will be a key issue.
- A significant shift and an increase in power demand at non-commercial rates could affect state-run distribution companies and ultimately damage state government finances.
Thus, the government should work on the EV ecosystem more holistically as import duty is just one aspect.