India is catching up by positioning itself as a worthy contender. And with reports of the government possibly tweaking localisation rules under the new PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-Drive) Scheme, can India put a spoke in China's smooth electric wheels? 

To further boost indigenous EV manufacturing in India, the Ministry of Heavy Industries (MHI) is about to modify localisation rules under the PM E-Drive, which stipulates how much of an Indian EV must be made from local components.

Experts may say these new amendments indicate policymakers hoping to do more damage than a mere scratch to China’s oligopoly in the industry.

India has a long way to go to be a leader in EV manufacturing and has many hurdles to cross. But first, let’s see how subsidies promote localisation in EV manufacturing.

Previously, to bring prices of EVs at par with conventional petrol/diesel engines in 2019, the government had mandated EV makers to localise the manufacture of some EV parts to claim incentives in the second phase of the Faster Adoption and Manufacturing of Electric (FAME) scheme.

Push Towards Indigenising Manufacturing For EVs

The boost for localisation has since been carried over from FAME II to PM E-Drive. The government had also introduced the Phased Manufacturing Programme (PMP) as part of FAME II. This allowed companies to offer a discount on locally made EVs and claim it as a subsidy from the government.

That is where the story lies because it is likely that new localisation rules, which are still being looked into under PM E-Drive, would reduce the imports of parts that were outlined in the PMP under FAME II.

This can be attributed to India’s vision to become a leader in EV manufacturing and also to bring the price parity of EVs at par with petrol/diesel counterparts.

Let’s look into what the PMP was about in the first place.

PMP, under FAME-II, listed 18 parts that the original equipment manufacturers (OEMs) could import until a fixed deadline to get the incentive under the scheme. These parts included HVAC systems, circuit breakers, body panels, traction battery cells, traction motors and others.

But the traction battery pack was to be assembled in India for which battery cells and associated systems could be imported. 

Barring these 18, other EV parts were to be manufactured or assembled locally. The idea, again, was to propel localised manufacturing of EVs and EV charging parts. 

Similarly, for manufacturing EV chargers, the government allowed the import of components like Charger Enclosure, Panels, Gasket, Wiring, Connectors, Software, Energy Meters (AC and DC), Radio Frequency Identification, Input/Output Switchgear, Charging Guns (Type 2, Bharat DC 001, CCS, CHAdeMO) and Charger Controllers.

Power Electronics/Modules (AC to DC Converters) were also to be locally manufactured. The government has also specified that manufacturers have to meet 50 per cent domestic value addition (DVA) criteria in EV charger production.

The PMP deliverables seemed to have given a booster shot to the EV ecosystem in India but there was more to the story.

Hiccups Along The Way

Irregularities in localisation claims under FAME-II made by OEMs came to light in 2023, leading to a cut in EV two-wheeler subsidy in June 2023. 

The sales of electric two-wheelers dropped by almost 60 per cent as a result. Data aggregated by Clean Mobility Shift show that electric two-wheeler sales stood at 1,05,357 in May 2023 and fell to 45,841 in June.

The MHI investigated these subsidy claims. A high-level government panel concluded that auto companies intentionally violated FAME-II guidelines despite clear norms. 

Six EV manufacturers—Hero Electric, Okinawa Autotech, Ampere Vehicles, Benling India, Revolt Intellicorp and Amo Mobility—used imported products and yet sought incentives for localisation.

The setback to electric two-wheeler sales proved to be temporary as it rebounded. In March 2024, sales of electric two-wheelers touched a record 1,29,605.

Despite the ups and downs, the government's plan to modify localisation rules under PM E-Drive shows that it still believes it can be a leading global EV manufacturer. 

Other Growth Drivers For Local Manufacturing 

Besides the FAME scheme, two Production-Linked Incentive (PLI) schemes have pushed for greater domestic manufacturing of EV components.

The PLI-Auto scheme was launched by MHI in 2021 with an outlay of Rs 25,938 crore as financial incentives to promote domestic manufacturing and draw investments into the value chain of the automotive industry.

Besides that, the PLI Scheme for Advanced Chemistry Cell (PLI-ACC) was launched with an amount of Rs 18,100 crore to incentivise makers of advanced chemistry cells. Its main objective was to build a local manufacturing capacity of 50 gigawatt-hours.

In March this year, right in the middle of rumours of Tesla starting operations in India, the Centre introduced an E-Vehicle policy to promote India as a manufacturing destination. The scheme was brought in so that EVs, with the latest technology, can be manufactured in the country. 

The policy was designed to attract investments from reputed global EV manufacturers, allowing Indian consumers to access the latest technology, and boost the Make in India initiative. 

The scheme requires approved applicants to invest a minimum of Rs 4,150 crore to establish electric four-wheeler (e-4W) manufacturing units in India, with production facilities becoming operational within three years and achieving 25 per cent DVA in that time. The DVA quotient was set to increase to 50 per cent within 5 years. 

The companies were allowed to import fully built e-4Ws at a reduced customs duty of 15 per cent, subject to a cap of 8,000 units annually for 5 years, provided the vehicle's cost exceeds US$ 35,000. 

The total customs duty relief was capped either at Rs 6,484 crore or the company’s committed investment. 

With the government remaining resolute on the localisation of EVs, it is clear the indigenisation of EV manufacturing is high on priority. It may take time, but the policy navigation has been set for that destination.