India plans to bid fresh incentives to firms making electric vehicles (EVs) as part of a board auto sector scheme it expects to attract $14 billion of investment over five years, as per industry sources and a document seen by Reuters.
The country’s efforts to endorse EVs to lessen its oil dependence and cut pollution have been stymied so far by a lack of investment and weak demand, as well as the patchwork nature of existing incentives that vary from state to state.
The new automotive sector scheme, however, has been under discussion since mid-2020 to offer a more focused approach, industry sources close to the matter told Reuters. The plans envisage $8 billion of incentives for carmakers and suppliers over a five-year period to drive large investment in the segment.
Ultimate details of the scheme are expected within a month, but companies will be able to apply for incentives from April 1, the sources said.
Firms will receive 4-7% government cash backs on the eligible sale and export value of vehicles and components, but for EVs and their components there is an additional 2% as a “growth incentive” to promote electric mobility, according to the draft policy document seen by Reuters.
Elon Musk’s Telsa Inc is already gearing up to
enter India while rivals including Ford, Volkswagen and India’s Tata Motors and Mahindra & Mahindra also have plans to invest billion of dollars in EVs to meet up stricter global emissions regulations.
Automotive component manufacturers in India must be ready to pivot their product offerings to cater for the shift towards EVs, the document said.
Made in India
The automotive incentive plan is part of India’s broader $27 billion programme to attract manufacturers from the likes of China and Vietnam to capture a bigger share of the global supply chain and exports.
But for new firms entering India, as well as poor existing automakers, challenges abound.
Steep interest rates and power tariffs, as well as poor infrastructure and high logistics costs, make it more expensive for companies to operate in India compared with rivals such as Thailand or Vietnam.
“The (new) scheme proposes financial incentives to help overcome these disabilities and make India more competitive,” the draft policy document said, referring to inefficiencies that it stated can lead to 5-8% higher costs for manufacturers in India.
The government anticipates the scheme auto makers must meet conditions including minimum global revenue of $1.4 billion. For auto parts makers it is $69 million. The companies must grow by at least 8% each year to qualify for the incentives, which are also linked to the distance between the factory and point of sale.
The document added that existing programmers concentrate on a large number of companies that lack scale and “are constrained in their ability to invest and undertake the risk required for rapid growth”.
“A change in strategy is needed to focus on promoting firms that have the scale, competitive ability and management capabilities to be automotive champions,” it said.
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