Why in the News?

India has announced a major cut in import duty — 15% off on fully built electric cars — but only if the makers promise to invest locally and add value within the country. This is part of a new plan called the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI).

How does it aim to promote EV manufacturing in India?

• Investment-Linked Incentives: Offers a 15% concessional import duty on completely built-up (CBU) EVs. Manufacturers must invest at least ₹4,150 crore over 3 years. Eg: A global EV company like Tesla or BYD can benefit from lower import taxes if it sets up a manufacturing plant or R&D unit in India.

• Mandatory Localisation of Production: Companies must achieve 25% Domestic Value Addition (DVA) within 3 years, increasing to 50% in 5 years. Encourages use of local auto components, reduces import dependency, and builds domestic manufacturing capacity. Eg: EV makers could partner with Indian auto component suppliers like Motherson Sumi or Bosch India to meet DVA targets.

• Cap on Imports to Push Local Production: Only 8,000 CBUs annually per manufacturer are allowed under concessional duty for 5 years. Companies must move quickly to set up local production to scale beyond this limit. Eg: After hitting the import cap, a company like Volkswagen may be compelled to start local assembly to meet rising demand and avoid higher duties.

Why is technology transfer critical for India’s EV transition?

• Late Start Requires Catching Up Quickly: India began its EV journey in 2015, about 5 years later than major players like China and the U.S. Without technology transfer, India risks falling behind in innovation and manufacturing capabilities. Eg: China’s early joint ventures helped it quickly develop advanced EV technology, something India needs to replicate.

• Lack of Indigenous Battery Technology: Batteries are the core component of EVs, and India currently lacks the technology to produce advanced batteriesdomestically. Technology transfer will help India build expertise in battery design, manufacturing, and supply chain integration. Eg: China’s vertical integration from mining to battery assembly gave it a competitive edge in pricing and scale.

• Building a Localised EV Ecosystem: Transferring technology via partnerships or joint ventures helps develop local suppliers and skilled workforce. This reduces dependency on imports and supports long-term sustainability of the EV industry. Eg: India’s success in ICE vehicles came through mandated joint ventures which facilitated tech and skill transfer; the same model can be applied to EVs.

How has China’s strategy helped it lead in global EV adoption?

• Early and Ambitious Subsidy Program: Launched the New Energy Vehicle subsidy programme in 2009, much earlier than many countries. This long-term financial support boosted EV production and adoption. Eg: Subsidies encouraged companies like BYD and NIO to rapidly scale EV manufacturing.

• Mandatory Joint Ventures for Technology Transfer: Required foreign EV manufacturers to form joint ventures with Chinese firms until 2022. This ensured technology transfer and domestic capability building. Eg: Tesla initially partnered with local companies to set up manufacturing in China.

• Massive Financial Incentives: China invested around $230 billion over 15 years on EV subsidies, infrastructure, and research—the largest globally. This comprehensive support accelerated industry growth. Eg: Government funding helped develop a vast EV charging network nationwide.

• Gradual Reduction of Import Duties: Reduced import duties on EVs from 25% in 2010 to 15% in 2018. Lower duties made EVs more affordable, increasing domestic demand. Eg: More affordable imports boosted consumer adoption alongside local manufacturing.

• Vertical Integration of Battery Manufacturing: Controls entire battery value chain: mining, processing, manufacturing, and assembly. This integration reduced costs and improved competitiveness against conventional vehicles. Eg: Chinese battery giants like CATL dominate global markets due to this vertical setup.

Way forward:

• Promote Strategic Partnerships for Technology Transfer: Encourage and mandate joint ventures between foreign EV firms and Indian manufacturers to ensure effective technology sharing and skill development.
• Build a Comprehensive Domestic Battery Ecosystem: Invest in creating end-to-end battery manufacturing capabilities, including raw material sourcing, processing, and cell production, to reduce import reliance and lower costs.

Mains PYQ:

[UPSC 2023} How do electric vehicles contribute to reducing carbon emissions and what are the key benefits they offer compared to traditional combustion engine vehicles?

Linkage:  India’s journey to decarbonize and transform mobility, which includes the adoption of EVs, is currently hampered because policies “fall short of addressing a pressing issue… technology transfer”. This question directly addresses the core subject of electric vehicles (EVs) and their benefits, particularly in reducing carbon emissions.

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