It will be fair to conclude that the government’s electric vehicle (EV) policy has failed to yield the desired results. Last week RK Singh, secretary, department for promotion of industry and internal trade, said they hadn’t heard from Elon Musk about his India visit or about Tesla’s India plans. The congratulatory message to Prime Minister Narendra Modi on his election victory was the last that was heard from Tesla’s CEO.

Going by the fine print, the EV policy is not about Tesla only. It’s aimed at promoting domestic manufacturing by global players. However, the policy has been structured keeping in mind Tesla’s demand for India entry. The disappointment about not hearing from Tesla so far could have been contained had other global manufacturers that are already present in India shown interest in availing its benefits. But the silence of all manufacturers — global and local — from the day the plan was announced (March 15) signals that none seem to be interested. If Tesla does not come to India, the policy is dead for all practical purposes.

But what exactly does the EV policy offer and what’s wrong with it? The policy is a fine mix of incentives and deliverables which lay the ground for manufacturers to explore India as a production hub to service the world market. True, it has been designed keeping Tesla in mind because it had been insisting on reduction of import duty before considering domestic assembly, but then it has not given it a free ride.

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India’s automobile market is a developed one with all global players having a manufacturing base here. But then it’s mostly for internal combustion engine technology. The emerging area of EVs comprise only around 2% of the passenger vehicle market. Even in the luxury segment where Tesla operates, the share of EVs is 3-4%.

Tesla’s main demand for setting up an assembly base in India was reduction of custom duty on import of completely built-up units (CBUs). At present, 70% import duty is levied on CBUs costing less than $40,000, and 100% on vehicles priced higher. To meet Tesla’s demand and achieve its own purpose, the government combined two things. It brought down the duty under the policy to 15% on vehicles priced $35,000 and above for a five-year period. But this has been subjected to companies setting up manufacturing facilities in India within three years. In addition, they will have to meet 25% localisation within three years and 50% at the end of the fifth year. The minimum investment commitment from the manufacturers is `4,150 crore ($500 million).

Now comes the most important part. Companies applying will have to back their commitments with a bank guarantee in lieu of the duty forgone, which will be encashed if they fail to meet the investment criteria.

There can be no complaints about the fairness of the policy as it also opens the gate to global players like BYD, Volvo, Kia, Hyundai, BMW, Mercedes-Benz, Audi, and Porsche. Of the 15 EV models from these manufacturers that are available in the market, only two are domestically assembled.

Why have they not shown interest then? Perhaps because they can scale up their EV presence at a pace which suits them. They can import any models even at 100% duty and test the market here. If the response is good, they can be gradually assembled in India in the numbers required.

Take the case of Jaguar Land Rover, a part of Tata Motors. The company announced in May its plan to start manufacturing its marquee brands, Range Rover and Range Rover Sport, in India. Prior to this, JLR was already assembling Range Rover Velar, Range Rover Evoque, Jaguar F-PACE, and Discovery Sport here. Why should the company submit a bank guarantee to the government and be bound by three- to five-year localisation requirements when it can do the same without any such encumbrances?

Similarly, Mercedes-Benz, present in India for 30 years, has so far made an investment of `2,800 crore, which it plans to take to around `3,000 crore by this year-end. Contrast this to the requirement under the EV policy for a minimum investment of `4,150 crore.

It was hoped that VinFast would avail the benefits of the policy. In January, the Vietnamese EV manufacturer had announced plans to invest $500 million in India to set up manufacturing over five years. However, recent reports suggest it is considering direct assembly instead of importing its products first.

Tesla may announce plans for India at a later stage but it won’t be wrong to conclude that it seems to have reservations about the bank guarantee part. It’s clear that its intent behind seeking import duty concessions is to test the market. If the response isn’t encouraging it may choose not to carry on, but in that case it will have to forgo bank guarantee worth $500 million.

Even if well-intentioned, manufacturers opting for the policy benefits will need land to set up units and ancillary industry to meet domestic value addition. If the process of identifying land parcels isn’t fast and smooth, deadlines can be missed. In such a scenario encashment of bank guarantees will pose a legal challenge that can turn messy as the law is tilted in favour of the one encashing. The policy provisions are such that both the government and manufacturers seem to be caught in a catch-22 situation.

Rishi Raj, rishi.raj@expressindia.com

Views are personal