The government is evaluating a proposal by US electric carmaker Tesla seeking a reduction in import duties ahead of a local launch and a decision will be taken shortly, Niti Aayog CEO Amitabh Kant told ET.
“That (Tesla’s request for a duty cut) is being studied by the government. All concerned ministries are examining the proposal,” said Kant. The final decision will be taken by the finance ministry’s revenue department.
The intent of the government is to enable Tesla to manufacture vehicles in India, said several officials assessing the matter.
The Ministry of Heavy Industries has suggested that the American carmaker consider local assembly of semi-knocked down units to avail of reduced levies on kits and subsequently scale up to full-fledged manufacturing, instead of seeking a cut in customs duties. However, according to officials, Tesla has said its cars currently cannot be assembled from kits. The discussions are ongoing.
“The government is open to discussing a temporary reduction in import duties, say for a period of three years. But for that, they first have to submit firm business plans,” said a source.
No Concessional Duties on Intent
Concessional duties cannot be extended merely on the basis of “intent” to invest. “India is a mature market, a very large market,” the person said. “The thinking is they cannot ask for concessions for testing the market. Tesla already sources components. Then why can they not manufacture vehicles here? They have to make some commitment.”
Tesla couldn’t be immediately reached for comment.
An outright cut in import duties, the government fears, will result in the import of electric cars, instead of companies setting up manufacturing facilities. This in turn will have an adverse impact on the kind of investment that leads to employment generation in India. The world’s most valuable car company has pitched for a cut in import duties, saying that the levies imposed by India are the highest among large countries and that it can only consider setting up a factory locally if it succeeds with imported models.
India currently imposes 100% import duty on cars with CIF (cost, insurance, freight) value of over $40,000 and 60% on cheaper vehicles. Tesla has sought 40% import duty on fully assembled electric cars. Tesla CEO Elon Musk, who regularly features on Bloomberg’s index of the richest on the planet, has said the duty structure for cars running on the electric powertrain should not be out of kilter with India’s climate-change objectives.
Tesla’s proposal for import duty cuts on fully-built electric vehicles has divided stakeholders in the local automotive industry. Tata Motors, TVS Motor Co. and Ola Electric have objected to a reduction, contending that this will hurt investments made to scale up localisation. Hyundai Motor India, BMW India and Audi India have backed a reduction in duties, saying this will help the industry generate demand and build volumes with imported EVs before commencing production here on a mass scale.