In the last episode, my colleague and host of Climate Economy, Kunal Shankar, spoke about the shifts underway in India’s transport sector, as it attempts to decarbonise. One among the many places where this transition is likely to be felt most is Coimbatore. That’s because this district is home to many of the smaller firms that form part of the automobile sector’s value chain catering to Internal combustion engine vehicles.

Coimbatore is one among the leading supply chain clusters in the country for the auto sector. Its journey as a component manufacturer for automobiles started almost six decades ago led by the foundries that made castings, factories that manufactured motors, and the demand from automobile majors in Tamil Nadu. 

In a district where streets of one or two room workshops, called micro or cottage industries, contribute to the economy, are there job losses, job shifts, or new jobs as the industries prepare for the transitions in the mobility sector? Is there adequate funding available for the MSMEs? Are these units plugged into the latest developments in technology? Let us drive into the auto clusters to understand better what’s happening on the ground.

Script & Presentation : Soundariya Preetha

Video & Editing: Shibu Narayan

Jaisalmer:

The goods and services tax council on Saturday decided to levy an 18 per cent GST on margin value on the sale of used electric vehicles by businesses and agreed to keep jet fuel (ATF) out of the ‘one-nation-one-tax’ regime.

The GST Council in its 55th meeting also decided to clarify on taxability of popcorn, saying caramelised popcorn will continue to attract tax at the rate of 18 per cent. However, pre-packed and spiced popcorn will attract 12 per cent, while 5 per cent will be levied on unpacked and unlabelled ones.

It has been decided to regularise the issues for the past on “as is where is” basis… “It is a clarification being recommended by the GST Council to settle the disputes arising out of interpretation,” an official statement said.

The panel, headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states and UTs, deferred decisions on reducing tax rate on insurance products as also on levy of the tax on food delivery by aap-based platforms.

The panel cut the tax rate on fortified rice kernels used for public distribution to 5 per cent from 18 per cent, Sitharaman told reporters after the meeting of the Council here.

The Council also decided that no GST will be payable on penal charges levied and collected by banks and NBFCs from borrowers for non-compliance with loan terms.

The panel deferred a decision on reducing the rate of tax on insurance premium, pending comments of the sector regulator, she said.

A group of ministers examining the issue had recommended exempting insurance premiums paid for term life insurance policies from GST and premium paid by senior citizens for health insurance cover. It had also suggested GST exemption on premium paid by individuals, other than senior citizens, for health insurance with coverage of up to Rs 5 lakh.

Alongside, the GoM on rate rationalisation, which is looking at tweaking rates on 148 items, will be given more time to arrive at a decision.

The finance minister said the council decided to raise the rate of tax to 18 per cent from 12 per cent on all used EV sales, just as in case of non-electric vehicles, and it will be applicable only on the value that represents margin – the difference between the purchase price and selling price (depreciated value if depreciation is claimed) – by businesses.

Sale and purchase of used vehicles by individuals will continue to be exempt from GST.

Without naming any state, she said the states wanted to continue to keep aviation turbine fuel (ATF), used in aircrafts, out of the goods and services tax (GST).

When the GST subsumed more than a dozen central and state levies into GST in July 2017, five products – crude oil, petrol, diesel, ATF and natural gas – were kept out of its purview. The central government levies excise duty on them and states levy VAT.

“Every state clearly said that ATF should not come into GST… States did not feel comfortable” to include ATF under the GST, she said.

She said black pepper and raisins when supplied by an agriculturalist is not liable to GST payment.

GoM on health insurance requires more work, she said, adding the same was the case with rate rationalisation GoM.

“No report (on rate rationalisation) has been finalised,” she said.

The GoM on GST compensation cess, under Minister of State for Finance Pankaj Chaudhary, has been given an extended deadline to submit its report. The earlier deadline was December 31, 2024.

On small companies facing registration problems, she said a concept note has received in-principle approvals. This may require amendments to be made to the GST Acts to make it easier for small companies to register.

The Council also decided to set up a Group of Ministers to mull over allowing states to levy cess under GST to overcome financial distress after natural calamities.

Finance ministers of Uttar Pradesh, Telangana and West Bengal would be part of the GoM.

The Council decided to form the GoM after Andhra Pradesh sought Council’s approval to levy 1 per cent cess to overcome financial distress post flood in the state.

No decision was taken on levy of tax on delivery charges by quick commerce and food delivery platforms. “This has been deferred,” she said, adding the Fitment Committee will again review it and the issue being debated is if the tax should be equivalent to 5 per cent GST levied on food or more. 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

The story so far: The Union government on March 15 approved a policy to promote India as a manufacturing hub for electric vehicles (EVs). Broadly, the policy attempts to pave the way for global EV manufacturers to invest in India and to manufacture locally. “This will provide Indian consumers with access to latest technology, boost the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players,” the government stated, adding that this move would lead to higher production, attaining economies of scale, and help reduce air pollution, among other things. The minimum investment cap has been set at ₹4,150 crores.  

The move attempts to combine two goals – localising production and an annual EV car sale of 30% by 2030.  

What does the policy stipulate?  

The policy broadly clears the path for global EV makers like Tesla and Chinese EV maker BYD to foray into the Indian markets. The central goal of this policy is to enable transitioning to localised production in a commercially viable manner and plan as per local market conditions and demand.   

The most significant provision is the reduction of import duty on electric vehicles imported as a completely built unit (CBU) with a minimum cost, insurance and freight (CIF) value of $35,000 to 15% from the present 70%-100%. Reuters had reported last August that lowering import taxes was among the major proposals made by Tesla. It had welcomed the Indian proposal to set up a facility but demanded lower import duties on electric cars. But the Indian government has been of the view that lowering duties might encourage import dependence, without leading to technology and production transfers. This deterred India from entertaining Tesla’s request for lower duties.

The current provision is India’s attempt to find a midway point where affordability for a captive market is prioritised, while recognising that import substitution is a protracted process requiring a layered approach. The current provision will be extended for five years subject to manufacturers setting up their facilities in India within three years. 

The policy also stipulates that a total duty of ₹6,484 crore or an amount proportional to the investment made — whichever is lower— would be waived on the total number of EVs imported. It must be noted that, a maximum of 40,000 EVs can be imported under the scheme at not more than 8,000 units a year, provided the minimum investment made is $800 million. Carryover of unused annual imports limits is permitted.  

Overall, the minimum investment cap for eligibility has been set at $500 million (approximately ₹4,150 crore).  

Another important aspect of the scheme is localisation targets. Manufacturers have three years to set up their manufacturing facilities in India. They are expected to attain 25% localisation by the third year of incentivised operation and 50% by the fifth year. For clarity, it is the domestic value addition as part of the larger manufacturing process which must attain the stipulated targets. Should the localisation targets not be achieved, and if the minimum investment criteria as defined under the scheme guidelines is not meet , the bank guarantees of the manufacturers would be invoked.

What does this mean for the domestic players?  

Tata Motors, as reported by Reuters in December 2023, had opposed the Tesla proposal. It argued that lowering duties would hit the domestic industry and “the investment climate will get vitiated.” It said investors had made investment decisions on India’s EV sector assuming that the tax regime favouring locals would remain unchanged. The company further argued that India’s EV players required more government support in the early growth stage of the industry.  

Assessing the policy from the perspective of domestic players, Rajat Mahajan, Partner at Deloitte India, who has been following the domestic EV landscape, told The Hindu, “Most Indian players are leading in the segments below ₹29 lakhs as of now, and hence this policy benefit (from 15% import duty) will likely be for Original Equipment Manufacturers (OEMs) catering to consumers in the higher end of the market.” He added that the policy makes it lucrative for global EV players, and Indian JVs with such players, to expand sales and manufacture in India. “This would lead to advantages of technology and upgrade of local supplier ecosystem which benefits local manufacturers also boosting our overall EV ecosystem,” added Mr. Mahajan 

However,some global OEMs in the luxury space who have already introduced their EVs in India and are planning to localise “may be at a disadvantage.”  

How does the policy cater to Indian markets?  

I.V. Rao, Distinguished Fellow at The Energy and Resources Institute (TERI), thinks that global players setting up shop in India must consider local circumstances, like the environment, roads, driving behaviour and usage conditions. “Indian customer expectations are very challenging and very price sensitive. In the past, global players who entered the Indian market with products made for other countries were not successful,” he notes.  

Mr. Rao said the Indian EV market that consists of two and three-wheelers, passenger cars and even light commercial vehicles, is plagued by low-battery capacity and lower range (when compared with EV models in E.U., China and the U.S.), with crucial parts/systems being imported. But he feels that the EV supply chain is evolving with the government’s Production-linked Incentive (PLI) scheme. “With aggressive targets for EV penetration, this EV supply chain is bound to grow. All these factors, including the ease of doing business, would be critical considerations for global EV manufacturers to operate in the Indian ecosystem,” Mr. Rao observed.  

Other challenges relate to EV adoption in the country. Mr. Mahajan from Deloitte notes that while penetration in the two-and three-wheeler segment has been significant, passenger vehicles have seen only a 2.2% contribution thus far. “This is mainly due to lack of proper charging infrastructure, range anxiety, and limited number of products in the affordable range due to limited localisation,” he observed.  

“The Indian market has relied heavily only on government incentives till now. Hence global players have their work cut out for them to ensure good quality products at an affordable price, reliable driving range supported by charging infrastructure,” he adds.

Upscaling charging infrastructure is crucial to scale EV adoption. The Confederation of Indian Industry (CII) in a July 2023 report had observed that India may require at least 13 lakh charging stations by 2030 to support “aggressive EV uptake.” Further, Minister of Heavy Industries Mahendra Nath Pandey told Parliament last year, quoting preliminary studies, that nine cities with a population of more than 4 million — Delhi, Mumbai, Pune, Ahmedabad, Surat, Bengaluru, Chennai, Hyderabad and Kolkata— would each require 18,000 public charging stations by 2030.

Are the localisation targets attainable?  

Mr. Mahajan thinks these are “very early days to comment on whether targets would be met.” He commended the government for rolling out a “very lucrative scheme” for global manufacturers. “While there are guardrails (invoking bank guarantee if policy conditions are not met) set in the policy, this will push global OEMs to understand the Indian market in an accelerated fashion,” he observed. He believes that global EV manufacturers are not only eyeing the Indian market but are also considering making India a hub for exports. “For now, it seems like a win-win for the Indian consumer, the local EV ecosystem and global OEMs,” he observed.

Mr. Mahajan also believes localisation targets would open “significant opportunities for the Indian EV ecosystem. Excluding chips, battery cells, magnets, all other components like body parts, motors, electric parts can be localised within three years, while other areas can be indigenised in the medium term including BMS (battery management system) which is mostly software driven.” 

Further, Mr. Rao told The Hindu that the policy “brings clarity for prospective manufacturers to take long-term decisions.”

“Five years is a sufficiently long-time frame to achieve 50% localisation. Also, the reduction in custom duty on import of completely built units for testing and market trials would help global players accelerate the development process with reduced risk,” he said.  

Electric commercial vehicle maker PMI Electro on July 25 said it has appointed Aanchal Jain as the Chief Executive Officer (CEO).

Her appointment will help the company steer through new challenges faced by large electric vehicle OEMS in terms of fast-paced growth and capex-hungry financing requirements, PMI Electro said in a statement.

“It gives us pride to bring the second rung of leadership at the company with global experience and perspective,” said Satish Jain, Chairman and Managing Director of PMI Electro.

Ms. Jain holds a Ph.D. in Economics from Northwestern University and an MSc. in Economics from The London School of Economics and Political Science (LSE), according to the statement.

With an extensive product portfolio, the original equipment manufacturer (OEM), is developing 7-metre, 9-metre, and 12-metre electric buses at its Delhi-NCR facility, which has a capacity to produce 1500 eCVs.

The company has over 1,180 e-buses currently operating across 28 cities in the country, as per the statement.