Will FTAs Reshape India’s EV Policies?

India’s commitments on emission reduction, and achievement of net zero emissions by 2070, have laid the foundation for development of a robust EV ecosystem in India. Over the years, India’s EV policies have been focused on increasing domestic manufacturing and incentivising the setup of adequate charging infrastructure, along with facilitating import of critical minerals on concessional duties. From the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME I) scheme launched in 2015, with a budget outlay of Rs 895 Crore, to FAME-II launched in 2019 with an outlay of Rs 11,500 crore and now, the currently applicable, PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme with an outlay of Rs 10,900 Crore - India has predominantly sought to accelerate EV adoption through domestic manufacturing. 

Additionally, to strengthen the EV ecosystem and reduce import reliance, the Government in May 2021 launched a Rs 18,100 Crore PLI scheme for advance cell chemistry manufacturing and later in January 2025 launched the National Critical Mineral Mission (NCMM) with an outlay of Rs 16,300 crore. Also, the Union Budget over the last two years has exempted customs duty on critical minerals and capital goods required for EV battery manufacturing.

In March 2024, given the push from global auto manufacturers, particularly Tesla, to provide access to India market, and to attract investments from global EV manufacturers - India introduced the Scheme for Promotion of Manufacturing of Electric Passenger Cars in India (SPMEPCI). SPMEPCI contemplates that approved applicants would be able to import completely built units of e-4W at a reduced customs duty of 15 per cent provided they meet the conditions set out in the scheme. The conditions set out in SPMEPCI include the requirement to invest a minimum of Rs 4,150 crore in setting up manufacturing facilities in India to manufacture e-4W, and that such facility must be operational within 3 years to achieve a minimum Domestic Value Addition (DVA) of at least 25 per cent by the end of the third year, and 50 per cent by the end of the fifth year. It may be relevant to note that the current customs duty (outside the SPMEPCI) on passenger vehicles (4W) which are of a value lower than USD 40,000 is about 70 per cent and those of a value higher than USD 40,000 is about 110 per cent. Therefore, SPMEPCI offers significant duty concessions albeit subject to certain conditions.

While Tesla appears to have decided to make its much-awaited India entry pursuant to the SPMEPCI, the scheme has received a mild reaction from other global players like Volkswagen, BMW, and Mercedes-Benz. India is a price sensitive market and for global players whose portfolio comprises of only high-end models, going under SPMEPCI may not seem attractive. They would be required to commit to a significant investment without having a commensurate market share.

Accordingly, the outcome of the ongoing trade negotiations is eagerly awaited by auto manufacturers across the globe. For context - prior to the recently concluded India- UK free trade agreement (FTA), India had 13 FTAs with predominantly South Asian countries, notable exceptions being UAE and Australia, and 6 preferential trade agreements. India is now looking to conclude agreements with US and EU, amongst other major economies. 

Further, while the text of the India-UK FTA is yet to be finalised and published, from publicly available information, it appears that the UK auto manufacturers are looking to significantly benefit from lower import duties agreed by India (reduced from over 100 per cent to 10 per cent in a staggered manner) for a certain number of cars. Similarly, India will be allowed to export a quota of EVs and hybrid cars to the UK at concessional tariff, but in stages and within the prescribed quota. It may be relevant to note that once the text of the India-UK FTA is finalised and signed, both countries will need to ratify it before it can come into force and this is expected to take up to a year. 

The conclusion of the India-UK FTA negotiations marks a significant milestone in India’s evolving stance on global trade and has set the tone for other trade negotiations. It appears that for other FTAs, the Government of India may consider similar reductions in tariffs (and potential modifications to the SPMEPCI), or even the introduction of zero-duty imports under certain conditions. Additionally, it has also sent a strong signal that while India may be open to tariff reductions, this would happen only in a phased manner giving domestic manufacturers time to scale up.

FTAs are likely to have a significant impact on the direction, pace and competition in India’s EV sector. On one hand, reducing tariffs may provide Indian customers with an array of options to transition out of ICE engines and move to EVs, and on the other hand, it may threaten the domestic EV ecosystem which is still in the nascent phase and where manufacturers have made significant long-term investments based on India’s energy transition goals. Having said so, Indian automakers, such as Tata Motors and Mahindra, are also closely watching the opportunities and the incentives that the FTAs, such as the one between India and UK, provide to export Indian EVs outside India and to create synergies with their global counterparts.  

At this point, the Indian government is aiming to strike a careful balance between safeguarding the domestic EV ecosystem, attracting global investment, and securing favourable tariff access for Indian exports and it remains to be seen if all of these objectives can be met across all ongoing FTA negotiations, and if so, to what extent.

The above article has been written by Venkatesh Raman Prasad and Shivani Chugh, Partners at JSA Advocates and Solicitors.