Central Govt. Approves New EV Policy with Tax Relief

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What’s in Today’s Article?

  • About Electric Vehicles (Need for EVs in India, EV sales, FAME Scheme, etc.)
  • Key Initiatives Taken by the Govt.
  • News Summary

Why in News?

The Central Government has announced a new electric vehicle (EV) policy that will be coming with tax relief.

This is expected to provide a major boost to companies like Tesla, Vinfast that have plans to start operations in India.

Background

  • India has committed to achieving net-zero emissions by 2070 at the 26th Conference of the Parties (COP26) in November 2021.
  • This will require clear pathways to decarbonize high greenhouse gas (GHG) intensive sectors such as transport and energy.
  • To decarbonize transport, the transition to clean mobility, led by electric vehicles (EVs), is paramount.
  • India is on the cusp of an e-mobility revolution led by the two-wheeler (2W) and three-wheeler (3W) vehicle segments.
  • 2Ws account for 70-80% of all private vehicles, and 3Ws play a critical role for public transit, freight transport and last mile connectivity in cities.

EVs in India

  • Electric vehicle sales in India jumped 49.25 per cent year-on-year to more than15 lakh units in 2023, according to a data released by the Federation of Automobile Dealers' Association (FADA).
    • The EV industry had recorded a total sale of around 10 lakh units in 2022, as per the data.
  • The surge in sales can be attributed to increase in the availability of products in the market, high fuel prices, state subsidies and sops offered under the FAME-II Initiative.

About FAME-II Scheme

  • Launched in 2015, the Fame India scheme is an incentive scheme that encourages the adoption of electric and hybrid vehicles.
  • The full form of FAME India scheme is “Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India”.
  • In 2019, the Central government approved Phase-II of FAME Scheme with an outlay of 10,000 Crore for a period of 3 years.
    • Earlier this year, it was extended to March 31, 2024.
  • Phase-II aims to generate demand by way of supporting 7000 e-Buses, 5 lakh e-3 Wheelers, 55,000 e-4 Wheeler Passenger Cars (including Strong Hybrid) and 10 lakh e-2 Wheelers.
  • Nearly 2 lakh vehicles have been supported under the FAME-II scheme.

Other Measures taken by the Government to promote use of EVs

  • Battery Swapping Policy:
    • Battery swapping is an alternative which involves exchanging discharged batteries for charged ones and provides flexibility to charge them separately.
    • This de-links charging and battery usage and keeps the vehicle in operational mode with negligible downtime.
    • NITI Aayog, recently, released a draft battery swapping policy under which all metropolitan cities with a population above 40 lakh will be prioritised for development of battery swapping network under the first phase.
    • Battery swapping is an alternative which involves exchanging discharged batteries for charged ones and provides flexibility to charge them separately.
    • This de-links charging and battery usage and keeps the vehicle in operational mode with negligible downtime.
  • Switching to an EV:
    • Central/State governments provide an upfront subsidy that reduces the overall costs of electric vehicles.
  • E-AMRIT Portal:
    • The e-AMRIT portal offers various resources to help ease the migration to electric vehicles.

New EV Policy with Tax Relief

  • The Government of India has approved a scheme to promote India as a manufacturing destination so that e-vehicles with the latest technology can be manufactured in the country.
  • The policy is designed to attract investments in the e-vehicle space by reputed global EV manufacturers.
  • This will provide Indian consumers with access to latest technology, boost the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players.
  • It will also lead to high volume of production, economies of scale, lower cost of production, reduce imports of crude Oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment.

Key Features of the Policy

  • Minimum Investment required: Rs 4,150 Cr;
  • No limit on maximum Investment;
  • Timeline for manufacturing:
    • 3 years for setting up manufacturing facilities in India, and to start commercial production of e-vehicles, and reach 50% domestic value addition (DVA) within 5 years at the maximum.
  • Domestic value addition (DVA) during manufacturing:
    • A localization level of 25% by the 3rd year and 50% by the 5th year will have to be achieved.
  • The customs duty of 15% (as applicable to CKD units) would be applicable for a period of 5 years
  • Not more than 8,000 EVs per year would be permissible for import under this scheme. The carryover of unutilized annual import limits would be permitted.
  • The Investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone.