India wants to be world's car factory. A plan is in the works

Over the years, the Centre has put its weight behind zero-emission EVs; however, the coming discussions will consider whether conventional internal combustion engine (ICE) vehicles need support as well, two people aware of the plans said. To begin with, the heavy industries ministry wants to hear out the manufacturers.

"We will start work on the mission plan. We have not yet decided whether to include ICE engines or not. We will decide on that. First, the government will ask all stakeholders like SIAM (Society of Indian Automobile Manufacturers) and ACMA (Automotive Component Manufacturers Association of India), for what is required for vehicles and components," one of the two people cited above said on condition of anonymity.

The push for a long-term playbook comes at a time various incentives for the automobile sector are nearing expiry. Once the consultations are done, the ministry will decide on what incentives and support are required when these schemes end.

"The incentive schemes have a terminal year; they will end at a particular date. So, we will decide what needs to be done after that. We have not made up our mind whether to give incentives after that period. But naturally, when the automotive mission plan is prepared, we will include such things whether anything is needed or not, or only non-fiscal initiatives, policy guidelines or handholding and collaboration would work," the person added.

Queries emailed to the heavy industries ministry remained unanswered.

Last week, the government also launched the much anticipated Electric Vehicle Policy wherein it lowered the import levies on EVs and mandated investments worth at least $500 million by individual automakers to avail benefits of lower taxes.

The government's openness to mobility technologies beyond electric comes in the backdrop of the rising popularity of hybrid cars. Hybrid sales jumped four-fold in India in 2023, crossing electric car sales for the first time. This, even though they attract a steep 43% GST, against 5% for EVs. On Wednesday, Union transport minister Nitin Gadkari said at an event that GST on hybrids should be cut to 12%, since they are 60% electrically operated and pollute little.

A second person said the mission is in line with the government's 'Vision 2047' plan, adding the ministry will work as the nodal agency for the mission document, which will house all schemes and policies aimed for the automotive sector.

Currently, several schemes to support the automotive industry are operational. The second phase of the Faster Adoption & Manufacturing of Electric Vehicles in India scheme (FAME-II), launched in 2019 with ₹10,000 crore outlay, is ending on 31 March. The heavy industries ministry last week launched the Electric Mobility Promotion Scheme (EMPS) 2024 with an outlay of ₹500 crore to incentivize purchase of electric two- and three-wheelers till July.

Separately, a joint automotive mission plan of the government and the industry is already in force for the 2016-26 period, which aims at increasing exports and upskilling the workforce. The latest plan, however, would have a major focus on alterative vehicles including EVs and would have a longer term view till 2047.

Similarly, production-linked incentives (PLIs) for automobiles, components and advanced chemistry cells for EV batteries are already underway for five years.

Similarly, production-linked incentives (PLIs) for autmobiles, components and advanced chemistry cells for EV batteries are already underway for five years. The timeline for the PLI scheme for auto and components was extended this January by another year. The scheme's beneficiaries will be eligible for benefits for five consecutive financial years, but not beyond FY28. The overall incentives under the auto and auto component PLI would be ₹25,938 crore.

"Many of the schemes such as PLIs and FAME which have supported the industry so far would end in the near future," said Rajat Mahajan, partner, consulting at Deloitte India. "So, a mission document should look at several aspects, with continuing FAME for a short term of two years, and from a long-term perspective, localization & infrastructure being major subjects. Lower levies and easier land acquisition along with grid connectivity for setting up charging infrastructure would be key to boost EV adoption. Further incentives for batteries should continue in the form of subsidies or PLI to hit the target GWH capacity. Further, as the mission may look at a long-term perspective, and most likely beyond 2030, it should also focus on hydrogen-based mobility," Mahajan said.

However, one of the officials mentioned above said the initial talks may not cover hydrogen-based vehicles, as commercial use of the technology has not yet taken off globally. But combustion engine vehicles may be considered, with the government's biofuels push under way. Currently, 10% ethanol blended petrol is sold in all petrol pumps across the country under the ethanol-blending programme. The target is to touch 20% by 2025.

The government is also considering a demand for reducing taxes on flex-fuel vehicles. Flex-fuel vehicles sport combustion engines, but are designed to run on more than one fuel. They are primarily meant to run on biofuels such as ethanol and methanol, or a blend of biofuels and conventional fuels.

India already is a big player in the global automobile market. According to a report by India Brand Equity Foundation, India’s annual production of automobiles in FY22 was 22.93 million vehicles. In FY23, total automobile exports from India stood at 47,61,487. The sector's share of GDP rose from 2.77% in 1992-1993 to around 7.1% presently, and it employs about 19 million people directly and indirectly.

Although India has been a major force in conventional fuel-based vehicles, a similar growth is yet to be seen in alternative fuels or EVs, at a time China has taken the lead globally both in terms of manufacturing and adoption of EVs, and is also turning to be a major exporter of new-age vehicles.