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Business News/ Budget 2019 / News/  Budget 2020 proposes hike in EV import duty to promote domestic manufacturing

Budget 2020 proposes hike in EV import duty to promote domestic manufacturing

Increase in basic customs duty ranges from 10 to 40 percentage points across EV segment

Government has been promoting manufacture and use of electric vehicles to reduce India’s carbon footprint and crude oil importsPremium
Government has been promoting manufacture and use of electric vehicles to reduce India’s carbon footprint and crude oil imports

New Delhi: The Union Budget on Saturday proposed to increase customs duty on import of electric vehicles across categories.

The increase in basic customs duty is in the ranges of 10-40 percentage points across EV segment, and comes in the backdrop of Chinese manufacturers dumping low-quality battery packs for EVs in India.

These measures will result in a rise in prices of existing electric buses and passenger vehicles sold in India by Olectra Greentech, Hyundai Motor India Limited and MG Motor India Limited. These companies import their respective products in a completely knocked down (CKD) or semi knocked down (SKD) form.

Mint reported on 21 August about the low-quality battery packs being dumped in India as the Chinese government nudged battery makers to move up the value chain by calibrating subsidies, resulting in manufacturers of older models finding few takers there.

Finance minister Nirmala Sitharaman on Saturday proposed to increase basic customs duty on completely built units (CBUs) of electric vehicles to 40% from the existing 25%, while the same on the import of SKD form of electric passenger vehicles has been doubled to 30%.

Import of electric two-wheelers, buses and trucks in the same form will attract 25% customs duty as opposed to 15% applicable currently. Customs duty on import of electric vehicles, in a completely knocked down form has also been increased by five percentage points to 15%.

Most manufacturers are yet to establish a proper ecosystem for developing and manufacturing electric vehicles in India due to lack of demand. Important components such as lithium-ion cells, electric motors and other electronic parts are mostly imported by manufacturers.

According to an industry executive, these measures would help curb the import of components from China and especially the poor quality ones.

“The government wants to promote manufacturing of electric vehicles in India and this is a right step in that direction. This increase in customs duty was a long standing demand of some of the manufacturers since some substandard parts were being imported to India," added the person requesting anonymity.

According to the Economic Survey 2019-20, domestic sales of EVs reached 2.80 lakh units till November 2019. Most of these vehicles sold are, however, three-wheelers that run on lead-acid batteries. The Union government has decided to stop offering subsidies to such vehicles in the second phase of the FAME scheme, unless they are fitted with lithium-ion batteries.

Apart from electric vehicles, import of completely built units of commercial vehicles and some of components of internal combustion engine driven vehicles and electric ones, are also likely to get expensive due to hike in customs duty.

The CKD import of commercial vehicles will attract 15% customs duty compared to the existing rate of 10%. Auto components such as catalytic converters will also see a hike in import duty.

The government has been promoting the manufacture and use of electric vehicles to reduce India’s carbon footprint and crude oil imports. The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, or FAME 2, scheme—to expand commercial vehicle fleet—was announced with an outlay of Rs10,000 crore in March 2019.

Besides the Union government, Maharashtra, Karnataka, Andhra Pradesh and Delhi have framed policies to promote electric vehicles over the last two years.

The Union government is giving final touches to its plan to build Tesla-style giga factories to develop its own domestic battery manufacturing ecosystem. This involves a raft of incentives, such as concessional financing options, friendly tax regimes and a suitable basic customs duty safeguard.

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Published: 01 Feb 2020, 05:51 PM IST
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