India’s automotive industry is undergoing a radical shift by switching to more energy efficient forms of transport. This has led to growth in the electric vehicle (EV) sector. As the industry is growing, the movement away from fossil fuels is arriving and EVs are seen as a practical way to meet climate change targets by reducing greenhouse gases.
The value of the EV market in India will likely reach USD1.53 trillion by 2027. Following the rising yearly EV adoption rate, the government of India in 2013 published its National Electric Mobility Mission Plan, 2020 (NEMMP). This promotes the growth of the EV industry and the easing of EV adoption. The main driver of the NEMMP targets is the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme, but the government has introduced other policies and initiatives to support growth of the EV sector. In line with its vision, the government has brought in the FAME – phase II, the Phased Manufacturing Programme (PMP) and the Production Linked Incentive (PLI) for the Automobile and Auto Component Industry (PLI-AACI) schemes.
After the successful completion of FAME – phase 1, FAME – phase II was introduced in 2019. It aims to speed up the adoption of EVs by lowering their upfront costs. The emphasis of FAME – phase II is on public transport, that is electric three-wheelers, electric cars and electric buses registered for commercial purposes. Privately-owned registered electric bicycles are covered under the scheme as a mass segment. The success of the scheme is shown by an increase in EV sales in 2022-23 of 58% to a million vehicles.
The government introduced the PMP in 2019 to promote the domestic manufacture of electric vehicles and components by providing incentives for EV manufacturing in India. The PLI-AACI, which also began in 2019, gives incentives for investment and growth in the manufacturing of advanced automotive technology. Its main goal was to attract investment in the automobile sector by overcoming cost disadvantages, creating economies of scale and building robust supply chains for advanced automotive technology products. The target of PLI-AACI was to attract investment of INR425 billion (USD5 billion) during a period of five years; in fact, it has successfully attracted investment of INR748.5 billion.
To promote the sale of EVs, the government has reduced the goods and sales tax on EVs from the rate charged on other automobiles. It has also issued guidelines and standards for the EV charging infrastructure. These guidelines set out and ease regulatory compliance for the installation of EV charging stations in private and public spaces.
With the same intent to boost domestic production, forward-looking states have framed their own policies and incentives to attract investment. Such incentives include 100 per cent exemption of stamp duty; subsidies for fixed capital investment; subsidies for charging and battery-swapping infrastructure; halving of the cost of water; concessions on and exemptions from electricity tax; purchase and scrapping incentives; waivers of road tax and registration fees; setting up battery recycling ecosystems, and establishing a wide network of charging and swappable battery stations. To reduce the cost of EVs, the government has recommended that state governments waive the road tax on EVs.
The Republic of Korea is the 13th largest source of FDI, investing USD5.4 billion from April 2000–December 2022. South Korea has a well-developed automobile industry, manufacturing over four million vehicles annually. The Korean automobile industry is also rapidly adopting the production of EVs.
Companies such as Hyundai and Kia have found great success. India allows FDI up to 100 per cent in most sectors under the automatic route in which no government approvals are required. This includes sectors such as automobiles and EVs. Korean companies can set up either joint ventures or wholly owned subsidiaries and receive the benefits provided by the government and state governments for the manufacture of EVs and components.
The government’s policies indicate its desire to make India a manufacturing hub for EVs. Their investments in the EV space and ecosystem by Korean companies should also help them achieve their ESG goals. Large scale EV adoption is a great opportunity for Korean businesses to invest in India.
Rajat Prakash is managing partner, Siddharth Mahajan is a partner, and Naina Chandok is a senior associate at Athena Legal.
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