Local ingredients to spice up India's EV menu

India is looking to implement stricter localization norms from next April for makers of electric vehicles (EVs) and public charging stations, according to a draft of the proposed criteria seen by Mint. The guidelines also define a set of domestic manufacturing and assembly processes to avail government subsidies.

A new phased manufacturing program (PMP) for the EV subsidy program PM e-DRIVE, effective 1 April 2025, will require original equipment manufacturers (OEMs) to locally source and assemble many of even the smallest sub-components for eight critical EV components and assemblies across electric three-wheeler and two-wheeler categories, and 11 such components for electric buses, the draft shows.

In contrast, the PMP followed by beneficiaries of the previous Fame-II subsidy scheme had 18 EV components where some flexibility with respect to imports was allowed. Fame, or the ‘faster adoption and manufacturing of electric vehicles in India’ scheme, was introduced first in 2015 to promote electric and hybrid vehicles in India through financial incentives from the government.

“We definitely want to promote faster adoption of EVs with the PM e-DRIVE, but the condition is that it must be localized to the maximum extent possible," heavy industries ministry additional secretary Hanif Qureshi told Mint.

Qureshi said the government wants to strike a balance in the new PMP. “We don't want to make PMP too difficult that it cannot be followed, but we also don't want to make it too easy, which will lead to increase in imports," he said, adding that the final rules will be released over the next few weeks after a series of inter-ministerial and industry body discussions.

Apart from tightening local sourcing rules on PMP components such as electronic throttle systems, traction motors and motor controllers, some non-PMP components such as tyres, suspension and braking systems may also be mandated to be locally assembled.

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“There is also a restrictive clause which does not permit import of any other components that are not listed in PMP," an industry executive in close consultation with the government said on condition of anonymity. “Indian auto components makers often rely on assembling imported child parts. This can be challenging to adhere to in its current form."

The new norms will also bring in tighter rules to prevent false claims by EV makers to garner subsidies, something that has plagued earlier incentive programs.

Next steps

The government will hold a key stakeholder discussion on 4 October, and is looking to finalize the new PMP for the PM e-DRIVE scheme by the end of the year, according to two people with direct knowledge of the matter.

“The discussions are going to lay the groundwork for the upcoming PMP, where the government's push to nudge the industry towards deeper localization and enhancing domestic manufacturing capabilities within India’s EV ecosystem is quite clear," one of the two persons said.

Till the rules are finalized, OEMs will be allowed to claim subsidies based on the localization criteria set up in 2021 under the FAME-II scheme, the people said on condition of anonymity.

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In an event scheduled for 1 October, Union heavy industries minister H.D. Kumara Swamy is expected to formally kick off the PM e-DRIVE scheme by distributing digital vouchers to customers as part of the Centre’s push to promote EV purchases.

PM e-DRIVE refers to the third and final phase of the government's Fame subsidy program that will come into effect on 1 October with an outlay of ₹10,900 crore in the form of demand incentives to encourage greater proliferation of electric two-wheelers, three-wheelers, e-buses and heavy trucks.

Emphasis on local assembly, mfg processes

The new PMP draft reflects a sharp increase in localization targets compared to the Fame-II scheme.

While earlier norms allowed manufacturers some leeway in importing parts like battery cells, traction motors, and charging inlets, the 2025 guidelines will need OEMs to source everything from within India.

To be sure, this was the case earlier, too, but this time the guidelines are stricter on what aspects of these components should be locally manufactured or assembled.

One of the most critical changes in the new PMP is the emphasis on domestic processes for the production of key EV components. The draft outlines detailed steps that must be completed within India, such as PCB assembly, wiring harness production, and even software/firmware flashing.

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These processes were not fully covered under Fame-II, where OEMs were permitted to import semi-assembled systems and complete minor integration steps domestically. The new PMP takes localization a step further by ensuring that Indian manufacturers play a bigger role in the value chain.

The latest draft also places more importance on safety systems. For instance, the inclusion of MCBs/circuit breakers and electric safety devices shows an emphasis on creating a more standardized approach to vehicle safety systems, which must be indigenously sourced.

Penalties for non-compliance 

This time, the ministry of heavy industries is being more proactive in establishing processes to counter false claims of adherence to localization norms.

Under the Fame-II scheme, the government had found that seven two-wheeler OEMs had claimed subsidies without being fully compliant with the PMP criteria, and eventually initiated recovery proceedings against a couple of them.

Now, vehicle OEMs will be required to provide an undertaking affirming that all submitted data is accurate and has been duly signed by an authorized signatory.

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Further, OEMs must proactively notify test agencies of “any adverse changes to their submitted data that may affect their compliance with the PMP. This includes any modifications to the vehicle model, supply chain, or technical specifications post-eligibility certification", the draft says.

“Failure to comply with these requirements can result in the revocation of the Eligibility Compliance Certificate by the Test Agency and recommendations for the recovery of any subsidies granted," the draft said.