Patiala’s Maharaja Sir Rajinder Singh was an ally of the British Raj during the 19th century. Like many other princely kings of pre-independence India, his loyalty to the empire earned him a Grand Cross of the Star of India. But post-independence, the Maharaja and his kin may have wanted him to be remembered less for his British allegiance and more for being the first Indian to own a car.
In 1892, Singh imported a French-made De Dion Bouton. Decades later in 1948, India’s first locally made car, the Hindustan 10, rolled out. Far superior to the steam-powered Bouton, the Hindustan 10 was fuelled by gasoline.
India once again hopes to recreate this trajectory by allowing electric vehicle (EV) companies – like the US’s Tesla and Vietnam’s Vinfast – to import and sell cars. The ultimate goal is to set up manufacturing of these cars in India. But the government aims to achieve this in a quinquennium, rather than the half-century it took from a Bouton to the Hindustan 10.
This required a significant policy shift which the federal government implemented by reversing a position held from the ‘50s of encouraging local car manufacturing through penalising imports. This new policy was announced just days before the country goes to polls. It allows importing some electric cars at lower duties, provided companies invest $500 million in India within five years. Any foregone duty is to be repaid if companies fail to comply.
A 100% import tax is currently imposed on cars worth over $40,000 and 70% on cheaper ones. These sustained trade barriers have nurtured a thriving mass-market car industry, now valued at around $54 billion. The automobile sector contributes 7.1% annually to India’s $4 trillion economy, up from 2.77% in 1992-93.
Most importantly, the sector creates jobs in a country where the government spends over $10 billion every year on a dedicated programme to address rural poverty through guaranteed wage employment. The automotive industry claims it generates employment for 13 persons per truck, six per car, four per three-wheeler, and one per two-wheeler. In 2023, India produced 4.58 million cars and bought 4.1 million of them. Neighbouring China produced 30.16 million in the same year.
With roughly eight million jobs directly created by India’s automotive sector, the government is wary of irking the local industry dominated by Japan’s Suzuki, besides homegrown Tata and Mahindra.
Balancing these demands, the Narendra Modi government fixed an average minimum import value for availing sops at $35,000 per car. This is roughly three times the sale price of a domestically sold vehicle, sheltering local car makers. But it creates competition for German luxury car makers like Mercedes Benz who’s most selling vehicle in India, the E-class long-wheel-base, retails at around $86,000.
The latest attempt to establish a high-quality EV manufacturing industry in India is not Modi’s first. In 2019, his government launched a $1.2 billion programme to subsidise the sale of locally made EVs. This scheme initially appeared successful, only to later be found that domestic companies claimed subsidies against largely imported vehicles from China. This led to delayed subsidy payouts, even to companies known to be manufacturing in India.
A spillover of the fiasco is that other schemes which were launched to incentivise the automobile sector also face greater scrutiny.
In hindsight, the Maharaja’s enthusiastic import of the French vehicle merits more mention in automotive history books. But neither he nor did Bouton play a role in setting up local manufacturing. Similarly, just lowering duty barriers will not bring a Tesla or Vinfast to India, but it will certainly entice them enough to explore the market.
The Nascent Observer 