India mulls import duty reduction for companies that commit to making electric vehicles in India

The Centre is mulling a reduction in import duties for electric vehicle (EV) companies which can manufacture in India. Sources tell CNBC-TV18 that after a high-level meeting at the Prime Minister's Office, the government is considering reducing import duties for companies like Tesla if they commit to manufacturing and investing in India.

According to the sources, any such concessions would be in effect for a limited period until the company can begin manufacturing. However, no decision has been taken yet and any such policy change would be for all EV companies.

Former Commerce Secretary Anup Wadhawan believes that opening the Indian market to state-of-the-art manufacturing companies, such as Tesla, would be a positive step. He sees it as a way to enhance the sophistication of India's electric vehicle manufacturing ecosystem and complement existing initiatives like Production-Linked Incentives (PLIs).

"I think it would be a step in the right direction especially if done on a general secular basis for all companies. It is important for India to facilitate the entry of state of the art manufacturing firms like Tesla to upgrade our manufacturing ecosystem. Apart from direct benefits these firms can have major economy-wise spin offs, forward and backward linkages and horizontal cross sectoral impacts. These impacts can raise the sophistication of the entire manufacturing ecosystem. The move will also supplement steps like the PLIs which we have had earlier," Wadhawan said in an interview to CNBC-TV18.

EV giant Tesla has been in talks with the Indian government for duty concessions until the company can begin manufacturing in India. Tesla CEO Elon Musk had met PM Narendra Modi in US in June. Following the meeting, Musk had said that Tesla would like to come to India "as soon as humanly possible".

Tesla has been expressing concerns about India's high duty structures. Currently, all car imports attract a 70% duty for vehicles that cost up to $40,000, and a 100% duty on cars that cost higher. Tesla has sought a duty reduction to low double digits for fully built cars.

Randheer Singh, former Director of NITI Aayog and Founder of ForeSee Advisors, believes that Tesla's entry into the Indian market has the potential to be a game changer. He sees it as a significant alignment with India's electric vehicle initiatives and anticipates that Tesla's presence could accelerate the adoption of electric vehicles in the country.

CNBC-TV18 sought a response from government officials on the possibility of a duty concession for Tesla. "All reports of government considering duty concession for Tesla are speculative and no decision has been taken," said an official. CNBC-TV18 had earlier reported that Tesla could announce plans for India by January 2024 and is also considering an electric car in the range of ₹20 lakh for the Indian market.

According to a report in Reuters, India's Commerce Minister Piyush Goyal is set to meet Tesla chief Elon Musk in the United States next week.

The government has also conveyed to Tesla that the company can take advantage of a local supply chain and ecosystem for electric vehicles created due to FAME and PLI schemes. The government is also considering the third phase of the FAME scheme with an outlay of ₹50,000 crore.