The Ministry of Heavy Industries (MHI) has issued a notification dated 15 March 2024, introducing a scheme aimed at promoting India as a manufacturing hub for Electric Vehicles (EVs) and attracting investments from global EV manufacturers. The primary objectives of this scheme include fostering employment opportunities and realizing the ‘Make in India’ initiative.

Key provisions encompassed in the scheme to promote the manufacturing of electric passenger cars in India are as follows: –

• Eligibility conditions based on global turnover and investment thresholds. – Minimum investment requirement of INR 4150 Cr (US$ 500 Million).
• Mandatory bank guarantee to support investment commitments.
• Three-year timeline for establishing the manufacturing facility.
• Minimum domestic value addition of 25% by the third year and 50% by the fifth year.
• Invocation of bank guarantee in instances of failure to meet domestic value addition and minimum investment criteria.
• Electric vehicles with a CIF value of US$ 35,000 or more qualify for a reduced Customs duty of 15% for a period of 5 years.
• Import of a maximum of 8000 EVs annually for a 5-year duration, subject to the amount of duty foregone or investment made.

Some key definitions

• Group Companies: The term “Group Companies” refers to two or more enterprises that, either directly or indirectly, have the ability to: Exercise 26% or more of the voting rights in the other enterprise; or appoint more than 50% of the members of the Board of Directors in the other enterprise, as defined in the FDI Policy Circular of 2020.
• Global Net Worth: This pertains to the Gross Net Worth of a company or its Group company(ies) from all operations, including both domestic and foreign assets, minus all liabilities.
• Domestic Value Addition (DVA): The Domestic Value Addition is defined in the PLI-Auto scheme of MHI as the percentage of manufacturing activity being undertaken in a specific part of the supply chain. The percentage of domestic value addition is calculated using the following formula: [(Ex-factory price of the product (net of GST) – Import content) / Ex-factory price of the product (net of GST)] x 100. Certification of DVA will be carried out by the testing agency of MHI.
• Semi-Knocked down Unit (SKD): A Semi-Knocked Down (SKD) unit is a vehicle in the form of a knocked-down kit containing all the necessary parts and sub-assemblies for assembling a complete vehicle with engine, gearbox, and transmission in a pre-assembled condition but not mounted on a chassis or body assembly.
• Manufacturing: As per the Central Goods and Services Tax (CGST) Act, 2017, manufacturing refers to the processing of raw material or inputs in any manner that results in the emergence of a new product with a distinct name, character, and use. Within the framework of this Scheme, manufacturing specifically pertains to the production of electric passenger vehicles within the manufacturing facility(ies) to be established by the applicant, in adherence to the specified DVA requirements.

• Investment refers to the expenditure incurred on new plant, machinery, charging infrastructure, equipment, and associated utilities across India. This includes expenditure on various tools and equipment used in the design, manufacturing, assembly, testing, packaging, or processing of eligible products under the Scheme. Additionally, it covers the setting up of charging infrastructure, equipment, associated utilities, packaging, freight/transport, insurance, and the erection and commissioning of plant, machinery, and equipment. The scope also encompasses essential utilities required in operations areas, such as clean rooms, air curtains, temperature and air quality control systems, compressed air, water and power supply, and control systems. IT and ITES infrastructure related to manufacturing, including servers, software, and ERP solutions, are also considered as associated utilities. All non-creditable taxes and duties are included in such expenditure. However, expenditure on second-hand or refurbished plant and machinery, as well as leasehold assets, is not considered as investment under this Scheme.

Key Provisions

• The minimum investment required for the manufacturing of EV passenger cars (e-4W) is INR 4,150 Crore (US$ 500 million).
• The manufacturing facility should be operational within 3 years from the date of issuance of MHI approval letter.
• The Minimum Domestic Value Addition (DVA) requirement is set at 25% by the third year and 50% by the fifth year. – There is a reduced custom duty of 15% on the import of CBUs of e-4W.
• Vehicles with a CIF (Cost, Insurance, and Freight) value of US$ 35,000 or above will be permissible for a period of 5 years at a reduced duty of 15%.
• There is a capping on the maximum number of e-4W allowed under the reduced Custom duty – 8000 nos. per year, with a carry-over of unutilized annual import limits permitted.
• The total number of EVs allowed for import would be determined by the total duty foregone or investment made, subject to a maximum of INR 6,484 Cr (equal to incentive under PLI scheme).
• Investment commitment should be backed by a bank guarantee equivalent to total duty forgone or INR 4150 Cr, whichever is higher, and the bank guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria.
• There is no limit on the maximum investment commitment during the 3-year window.
• Eligibility criteria for receiving benefits under the Scheme include a global group revenue (from automotive manufacturing) of a minimum of INR 10,000 Crore and an investment at the time of application of global investment of the company or its group* company(ies) in fixed assets (gross block) of INR 3,000 Crore.
• Applications are invited within 120 days from the date of notification, to be applied through the online portal maintained by the Project Management Agency (PMA).
• An inter-ministerial Scheme Sanctioning Committee (SSC) will be constituted under the chairmanship of Secretary, MHI to monitor the implementation of the Scheme.
• Approved applicants are obligated to submit import applications annually for availing lower customs duty, submit a quarterly progress report with the PMA, and furnish an undertaking with regard to integrity compliance duly signed by its authorized signatory.

Key takeaways

• This Scheme is a significant step forward in boosting the ‘Make in India’ initiative, strengthening the overall EV ecosystem by attracting investments from leading EV players and placing India on the global map for manufacturing of EVs.

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LLM Manisha Bagaria