Dr. Ashwani Mahajan
Once again the issue of reducing import duty for importing their cars is in discussion for American electric car company Tesla. Till now, 60 percent import duty is imposed on any car whose price is less than $ 40,000 and 100 percent import duty is imposed on cars costing more than $ 40,000. This is done to protect Indian automobile industry from unfair foreign competition.
India’s automobile industry has made remarkable progress in the last few decades. The share of automobile sector in the total manufacturing output of the country is about 49 percent and it constitutes 7.1 percent of the total GDP. Most of the vehicles plying in the country are manufactured in India and very few vehicles are imported. Not only this, India’s automobile exports were worth $21.2 billion. This sector provides employment to 3.7 crore people.
Tesla’s demand
Tesla company says that it wants to set up its production plant in India. Tesla company is considered to be one of the best electric car manufacturing company in the world today. There is a great demand for the cars of this company not only in US but also in the rest of the world. The company feels that if the import duty in India were lower, then the sales of their cars could increase. Tesla company has put up the condition of duty cut on import of its cars to 18 percent, for setting up a plant of car manufacturing in the country.
The company says it is ready to invest $2 billion in the country, provided the import duty on its cars is reduced. Its request has not been accepted by the government yet, but if news reports are to be believed then the company’s request is definitely being discussed. It’s notable that at an earlier occasion nearly a couple of years ago, government had flatly rejected their similar demand.
The company says that it is already purchasing spare parts from India and this year it will purchase spare parts worth about $ 1.7 billion to $ 1.9 billion, from India. Experts believe that if Tesla sets up its factory in India, then along with it its suppliers will also set up their production units, which means a large amount of investment will happen in India.
Production and market of electric cars
Today almost all the automobile companies in India have started producing electric and hybrid cars. In such a situation, customers already have options to buy electric cars. It is noteworthy that last year, while the demand for normal petrol-diesel cars registered an increase of only 5 percent, the demand for electric cars increased at the rate of 157 percent. In India, nearly one lakh electric cars are sold monthly and the number is expected to rise rapidly.
Keeping in mind the growing market of Electric Vehicles (EVs) in the country, Tesla company has come up with a proposal to set up its plant in India, about which there is no opposition per se. However, there is no consensus on the proposal of reducing import duty. Major automobile manufacturers in the country argue that if the import duty on Tesla is reduced, then it will disincentivise the domestic electric car manufacturers to improve their quality.
To encourage the production of electric cars in the country, the import duty on components has already been reduced significantly. Today, spare parts for electric cars are being imported at only 10 to 15 percent import duty. These are much lower than the import duty on conventional automobile parts. Due to low import duty on electric car components, established automobile companies and startups in the country have started adding value to a large extent in the country. In this context, efforts are also being made to manufacture the spare parts in the country, which are currently being imported. In view of the incentives being given to electric cars by the Government of India, it seems that soon India will start meeting its own requirement of electric vehicles.
Till now, the key to the development of the automobile industry in the country has been the protection given to this industry by the government. Today, thanks to that protection, we have not only been able to meet our needs in the automobile sector, but are also exporting automobiles in large quantities. The total market of automobile parts of the country is about Rs 4 lakh crores. It not only provides employment to about 50 lakh people, besides, spare parts worth $17 billion dollars were exported during financial year 2022.
Why Tesla should not be given import duty concession
Concession given to import of Tesla cars would not be right, as it could hamper the efforts being made by the companies already operating in the country. But more importantly, Tesla company manufactures luxury cars. In 2019-20, only 40637 luxury cars were sold in the country, which got reduced to only 19700 in 2020-21 during the Covid19 period. The reason for this is that only a very small section in the country is able to buy luxury cars more expensive than 16 to 17 lakh rupees i.e. $20000 US and even a smaller section has the ability to buy a car worth $40000 i.e. 32-33 lakh rupees. In such a situation, if Tesla company is given exemption in import duty, then rich people who can buy expensive cars will naturally buy imported Tesla cars. This will affect the manufacturing of luxury electric cars in the country.
Not only this, many other companies, including Volkswagen, who are also in queue, will also demand lower import duty. We shouldn’t forget that we made a mistake in the past, of reducing import duty in the telecom sector, the consequences of which we are still suffering in the form of dependence on imports in that sector.
Secondly, we also have to understand that domestic companies are already putting a lot of effort into research and development in manufacturing electric cars. Concession in import duty will dampen these efforts. Thirdly, an Indian company ‘Ola’, with the help of investors, has made significant progress in manufacturing electric scooters in the country. Similar efforts can be made in cars, but the concession in import duty will hamper these efforts. Fourth, we have to understand that Tesla’s business model is such that it does not encourage domestic manufacturers of components, and only uses internal manufacturing technology. In such a situation, the expectation that the downstream value chain will develop with the arrival of Tesla company is not correct.
In view of all these factors, while inviting the Tesla company for manufacturing electric cars in the country, considering the interest of its domestic car and other automobile manufacturers and in the context of the larger objective of country’s self-reliance, that is, Atmanirbhar Bharat, any concession in import duty to the Tesla company should be avoided.
(The author is Professor, PGDAV College, University of Delhi)
Follow our WhatsApp channel
