India’s cabinet on Wednesday approved an incentive scheme for the automobile sector with an aim to boost production of electric and hydrogen fueled vehicles and boost manufacturing of drones.
Information and Broadcasting Minister Anurag Thakur told reporters that the government would provide incentives of about $3.5 billion to auto companies and drone makers over a period of five years.
“The incentive scheme is designed to help India become a global player in the automobile sector,” Thakur said, adding that it would also boost local manufacturing.
The proposal comes at a time when annual car sales in India fell to their lowest in a decade due to the pandemic, which was followed by an economic slowdown in 2019. Electric vehicle (EV) sales are a fraction of the total.
Several years ago, India was poised to become the world’s third largest car market by 2020, after China and the United States, with annual sales of 5 million. Instead, car sales remained stagnant at around 3 million a year even before the pandemic.
Ford Motor Company last week joined General Motors and Harley Davidson in pulling out from India, where it has lost $2 billion. The US automaker said it would stop making cars in India, and would take a $2 billion hit.
The stimulus plan is expected to help attract fresh investments worth about $5.8 billion in the auto sector, the government said in a statement.
Incentives will range from 8% to 18% of the selling price of vehicles or components and will be given to companies if they meet certain conditions such as a minimum investment over five years and a 10% increase in sales each year.
For example, carmakers would need to invest $272 million over this period, while auto parts companies would need to invest $34 million, the government said.
The original plan was to spend $8 billion to encourage auto and auto part manufacturers to manufacture primarily gasoline vehicles and their components for domestic sales and exports, with some additional benefits for EVs.
However, the focus of the plan was shifted again to encourage clean fuel vehicles as Tesla Inc prepares to enter India.
Auto parts manufacturers will be encouraged to invest in advanced technologies such as sensors and radars used in connected cars, automatic transmissions, cruise control and other electronics, as well as producing parts for clean cars.
Automotive Component Manufacturers Association of India (ACMA) President Sanjay Kapoor said that with global economies putting their supply chain at risk, the plan is to develop the country as “an attractive alternative source of high-end auto components”. will help.
India sees clean auto technology at the heart of its strategy to reduce oil dependence and reduce air pollution in its major cities while meeting its emissions commitment under the Paris climate agreement.
Domestic automaker Tata Motors is the largest seller of electric cars in India, with rival Mahindra & Mahindra and motor-bike maker TVS Motor firming up their EV plans. However, India’s largest carmaker Maruti Suzuki has no near-term plans to launch electric vehicles.
Tata Motors Executive Director Girish Wagh said in a statement that the scheme will accelerate “the country’s progress towards green mobility” and help attract foreign investment.