India has recently unveiled tweaked guidelines for its "Made-in-India" electric car initiative, signaling a significant shift in its approach to promote domestic manufacturing while attracting global players to its burgeoning EV market. The revised policy introduces a provision that allows companies to import electric vehicles (EVs) at significantly lower tariff rates, contingent upon their commitment to invest in local manufacturing.

The cornerstone of this initiative is the "Scheme to Promote Manufacturing of Electric Passenger Cars in India" (SPMEPCI), which was initially announced in March 2024. The Ministry of Heavy Industries (MHI) has now issued detailed guidelines outlining how global automakers can access reduced import duties by establishing manufacturing operations within India. This scheme marks a departure from broader automotive incentive programs, focusing specifically on electric vehicles.

Under the SPMEPCI, companies seeking to participate must commit to a minimum investment of ₹4,150 crore (approximately USD 500 million) within three years of approval. This investment is earmarked for establishing manufacturing facilities and operations dedicated to electric passenger cars in India. This substantial investment requirement signals the government's intention to attract established global manufacturers with significant existing automotive operations and financial capacity, rather than startups.

The primary incentive under the scheme is a substantial reduction in customs duties for imported electric vehicles. Approved companies can import fully-built electric cars valued at USD 35,000 or more at a 15% duty rate, a significant decrease from the standard, higher rates. However, these import allowances are subject to certain limitations: a maximum of 8,000 vehicles per year at the reduced rates, a five-year period for the duty benefits, a total duty savings capped at ₹6,484 crore or the actual investment made (whichever is lower), and the ability to carry forward unused annual quotas.

The policy also mandates a progressive increase in domestic content in the manufactured EVs. Participating companies must achieve a minimum domestic value addition of 25% within three years and 50% within five years, aligning with the standards set under the Production Linked Incentive (PLI) Auto Scheme. To ensure that companies follow through on their commitments, the scheme requires a bank guarantee equivalent to the higher of the total duty savings or ₹4,150 crore. This guarantee remains valid throughout the scheme period and will be forfeited if companies fail to meet the investment or localization targets. The guidelines further specify which expenditures qualify towards the investment commitment, focusing on new plant, machinery, associated utilities, and research and development. Land costs are excluded, while expenses on plant buildings and utilities are capped at 10% of the committed investment, and EV charging infrastructure expenses are capped at 5%.

The government aims to position India as a leading global hub for automotive manufacturing and innovation, aligning with the country's broader strategy to achieve net-zero emissions by 2070, promote sustainable transport, spur economic growth, and mitigate environmental harm. The scheme reflects the government's strategy of using temporary import duty relief to encourage longer-term manufacturing investments, offering time-limited benefits tied to specific performance milestones, rather than permanent tariff reductions.

Several major automotive companies, including Mercedes-Benz, Volkswagen Group (and its subsidiary Skoda), and Hyundai, have expressed preliminary interest in the new policy framework. However, Tesla appears to be taking a different approach, focusing its strategy on vehicle imports to serve the Indian market, with no expressed interest in establishing production facilities in India.

The application window for the SPMEPCI is set to remain open for 120 days or more, until March 15, 2026. Eligibility criteria include a minimum global automotive revenue of ₹10,000 crore and a fixed asset investment of ₹3,000 crore. The scheme requires a non-refundable application fee of ₹5,00,000.