The government has rolled out a new electric vehicle (EV) policy that aims to lure global automakers into making cars in India. But it is evident that while framing the detailed guidelines, which were notified on Monday, the ministry of heavy industries has missed the two foundational pillars for any policy’s success: need and timing. Therefore, the policy seems destined to become a non-starter. Ironically, this is not because it lacks structure or seriousness, but because it is a classic case of putting the cart before the horse. Let’s start with timing. Announcing the detailed guidelines now, amid ongoing trade negotiations with the US and following the India-UK free trade agreement (FTA), sends mixed signals to both industry and potential investors. The UK FTA, in particular, slashes import duties for a fixed number of premium vehicles, from over 100% to just 10%. British brands like Jaguar Land Rover, Aston Martin, and Rolls-Royce will surely exploit this window, which may bring down car prices by up to 40%.
In contrast, the EV policy requires global firms to invest a minimum of $500 million (Rs 4,150 crore), meet stringent localisation targets, and places a hefty bank guarantee to import vehicles at 15% import duty. Naturally, if manufacturers are able to get a favourable import duty regime through trade pacts, why would they bother with bureaucratic hurdles? The lack of public endorsement by any industry body or global manufacturer following the policy’s notification tells its own story. Despite minister HD Kumaraswamy naming companies like Mercedes-Benz, Volkswagen, Škoda, Hyundai, and Kia as participants in the consultation process, none has confirmed their intent to apply so far.
Now, let’s address the question of need. From the outset, it was clear that the policy was structured with Tesla in mind. Tesla’s repeated calls for import duty cuts led the government to look at policy balancing concessions with investment mandates. Yet, the company’s subsequent disinterest, and now the minister confirming Tesla has no intention to manufacture in India, render the entire exercise superfluous. If the policy’s primary catalyst has opted out, what exactly is the rationale to push forward with it? Tesla’s case makes the dilemma plain. The policy asks companies to commit a massive investment and submit a $500-million bank guarantee, knowing that if local production does not start within three years or localisation targets are not met, the guarantee will be encashed. But if the purpose is to test the market, as Tesla presumably wanted to, then such financial and legal liability makes participation unattractive.
This is the reason why even companies with existing manufacturing in India, such as JLR and Mercedes-Benz, see little reason to opt in. JLR is already manufacturing Range Rovers in India without government mandates or duty-linked guarantees. Mercedes-Benz has been in India for 30 years and invested Rs 2,800 crore at its own pace, far short of the Rs 4,150 crore this policy demands. It already assembles three of its EV models here. Any ambition that is not aligned with timing and real need leads to a mismatch that even a good design can’t overcome. The EV policy, then, seems a solution in search of a problem. With Tesla out and no real incentive for others to jump in, it has lost its central proposition. Unless sentiment shifts or the policy is recalibrated, it’s hard to see it achieving its intended outcomes.