India’s Electric Vehicle Manufacturing Scheme: Challenges and Future Directions

## India’s EV Manufacturing Scheme: Concerns and the Way Forward

**Last updated on June 11, 2025**
**Posted on June 11, 2025 by NEXT IAS Current Affairs Team**
**Syllabus: GS3/Science & Technology**

### Context
Recently, the Union Government announced that it would begin accepting applications from global electric vehicle (EV) manufacturers for establishing factories in India.

### About India’s Automotive Market
India’s automotive market is currently valued at ₹12.5 lakh crore (approximately $150 billion) and is expected to double by 2030. By then, passenger car sales are projected to grow to 9–11% of all vehicle sales, up from just 2.5% today, as electric mobility becomes integral to climate action. In March 2024, the Union Ministry of Heavy Industries introduced a Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI) to capitalize on this opportunity.

### Core Proposition of SPMEPCI
The SPMEPCI encourages global EV manufacturers to establish factories in India by allowing them a limited timeframe to import high-value electric cars (valued at $35,000) with a reduced customs duty of 15%, significantly lower than the usual 110%. This incentive is capped at 8,000 units per year and is subject to two conditions:

1. The revenue foregone must not exceed the manufacturer’s capital investment.
2. Companies must invest at least ₹4,150 crore, achieving a domestic value addition of 25% by the third year and 50% by the fifth year.

### Global EV Manufacturing Landscape
– **Surging Production and Regional Shifts**: Global EV production reached 17.3 million units in 2024, with China leading at 12.4 million units, making up over 70% of global output. European production stagnated at 2.4 million units, while North America had mixed results—Mexico doubled its output, whereas U.S. production declined.

– **Battery Innovations and Cost Reductions**: Battery prices have significantly decreased, enhancing the affordability of EVs. In China, costs fell by 30%, while Europe and the U.S. saw reductions of 10–15%. Manufacturers are focusing on solid-state batteries and advanced lithium-ion technologies to enhance efficiency.

– **Market Expansion and Consumer Demand**: EV sales are projected to grow from 15.7 million units in 2024 to 46.3 million units by 2035, at a compound annual growth rate (CAGR) of 10.3%.

### Global Export Dominance
China topped global EV exports in 2024, as reported in the Global EV Outlook 2025 by the International Energy Agency (IEA). In five emerging markets—Brazil, India, Indonesia, Mexico, and Thailand—Chinese original equipment manufacturers (OEMs) have offered EVs at lower prices than the average electric car, facilitating adoption.

### Significance of EVs
– **Tackling Climate Change**: The transport sector is responsible for approximately 15% of global CO₂ emissions. The reliance on oil (petrol and diesel) is a major contributor to this pollution. Electric vehicles powered by renewable energy offer a cleaner alternative.

– **Reducing Local Air Pollution**: Urban areas face significant air pollution challenges primarily due to fossil-fuel vehicles. EVs can dramatically reduce harmful emissions, benefiting public health and quality of life.

– **Saving Foreign Exchange**: Countries like India spend significant amounts on oil imports. Increased EV adoption could alleviate this burden, enhancing national economic resilience.

### Key Concerns and Challenges
– **Limited Incentives for Global Investors**: The SPMEPCI lacks tax breaks, capital grants, or land/energy subsidies, in contrast to EV policies in countries like Thailand and Mexico.

– **Stringent Localization Requirements**: While intended to encourage local manufacturing, many industry stakeholders are concerned that India’s supply chain may not be sufficiently developed to meet these demands, leading to potential production delays and increased costs.

– **High Entry Barriers**: The scheme’s requirements for minimum investment and strict domestic value addition targets may deter smaller or newer companies from entering the Indian market.

– **Revenue-Based Penalties**: Automakers must meet revenue targets of ₹5,000 crore in four years and ₹7,500 crore in five years. Falling short may incur penalties of up to 3% of the revenue gap, adding financial risk and uncertainty for participants.

– **Exclusion of Chinese Manufacturers**: The scheme explicitly prohibits Chinese EV manufacturers, including BYD, the world’s largest electric car manufacturer. This restriction limits competition and may reduce the variety of technology and pricing options available to Indian consumers.

– **Limited Interest from Global Majors**: While brands like Mercedes-Benz, Skoda, and Volkswagen have expressed interest, Tesla has opted out, choosing to pay full import duties rather than invest in domestic production.

### Government Initiatives and Policies
– **FAME India Scheme (Phase II)**: This initiative supports the electrification of public and shared transportation.

– **E-Vehicle Policy**: Aims to encourage global EV manufacturers to invest in India, thereby boosting domestic production and reducing reliance on imports.

– **PM E-DRIVE**: This program has been vital in promoting commercial EV adoption, especially in the three-wheeler segment.

– **Charging Infrastructure Expansion**: As of mid-2024, India had over 16,000 public charging stations, significantly enhancing accessibility for EV users.

### Way Ahead
To foster growth in the EV sector, the following actions are recommended:
– Focus on automation and AI in manufacturing to integrate modular EV architectures, streamlining production and catering to diverse market segments.
– Emphasize material recycling, waste reduction, and resource optimization to minimize environmental impact and promote sustainability.
– Introduce direct incentives such as tax exemptions, infrastructure support, or lower-cost financing.
– Revise investment thresholds to attract mid-sized global manufacturers.
– Expand import allowances beyond 8,000 units per year to provide investors with a longer runway.
– Strengthen supply chain development to sustainably meet domestic value addition targets.

### Daily Mains Practice Question
**Does India’s EV manufacturing scheme genuinely support industry growth, or do its numerous restrictions and caveats stifle innovation and competition?**

**Source: BL**