In a strategic move, the Indian government is contemplating the option of granting duty concessions on electric vehicles (EVs) through the Free Trade Agreement (FTA) route with specific nations, as disclosed by a reliable source. This approach gains prominence as New Delhi rejects the idea of an overall reduction in import duties on EVs, a decision likely to impact the entry of Tesla Inc into the Indian market.
Junior Minister Som Parkash stated on December 14 in the Parliament that there is presently no proposal to exempt local value addition costs or provide subsidies on the import duty for electric vehicles in India.
The source emphasized that a comprehensive duty cut would be applicable across the board and, therefore, exploring FTAs with specific nations could allow for reduced levies on EV imports, adhering to WTO regulations that permit such bilateral agreements.
As per WTO norms, trade barrier reductions should be universally applied, but exceptions are made for bilateral FTAs, enabling trade benefits to be exclusive to the parties involved. India is actively engaged in FTA discussions with the UK and the European Union.
Amid these considerations, the government is reportedly exploring tariff rate quotas to meet the UK’s request for reduced import duties on EVs as part of a proposed trade deal.
While there were earlier reports suggesting a potential new EV policy in India that could lower import levies for companies engaging in local manufacturing commitments, the source indicates that maintaining a balance between domestic and foreign entities is crucial, especially given the existing Production-Linked Incentive (PLI) scheme for EVs.
The PLI scheme, with a budgetary outlay of Rs 25,938 crore, aims to boost domestic manufacturing of advanced automotive technologies, including EVs, by providing financial incentives. Additionally, the government has already reduced the Goods and Services Tax (GST) on EVs from 12% to 5%.
Lowering import taxes on EVs was anticipated to facilitate global giants like Tesla in selling their full range of models in India. Talks between India and Tesla, ongoing since 2021, were reportedly progressing towards an agreement that involved selling Tesla cars in India from 2024 and establishing a factory within two years.
