Government’s EV Localisation Scheme (SPMEPCI): Challenges, Industry Response & Future

India’s EV localisation scheme, SPMEPCI, offers duty concessions to automakers committing to domestic manufacturing. Yet, months after launch, no global player has applied. Explore the scheme’s features, reasons for poor response, challenges, and way forward for India’s electric mobility mission.

Introduction

Electric mobility is at the heart of India’s strategy to reduce carbon emissions, cut oil imports, and position itself as a hub for green technology. With road transport accounting for a significant share of the country’s greenhouse gas emissions, the government has rolled out multiple initiatives—ranging from FAME (Faster Adoption and Manufacturing of Electric Vehicles) subsidies to PLI (Production Linked Incentive) schemes.

In this context, the Scheme for Promotion of Manufacturing of Electric Passenger Cars in India (SPMEPCI) was launched in 2025 as a bold attempt to attract global automakers to set up large-scale production units within India. The scheme promised major import duty concessions to those willing to commit significant investments and domestic value addition.

Yet, despite its ambitions, the scheme has so far failed to attract even a single application. Months after registrations opened, automakers have kept their distance. Why is this the case, and what does it mean for India’s localisation drive in the EV sector?

What is the Government’s EV Localisation Scheme (SPMEPCI)?

The SPMEPCI scheme is designed as a gateway for global EV manufacturers to enter India’s market while ensuring domestic manufacturing grows in parallel. Its key features include:

1. Import Duty Reduction

   • Existing import duties on electric vehicles stand at 70–100%, making them prohibitively expensive.

   • Under SPMEPCI, duty is cut to 15%, but only for a maximum of 8,000 imported EVs annually.

   • This concession is meant to allow firms to test demand while they set up manufacturing facilities locally.

2. Investment Requirement

   • To qualify, companies must commit to a minimum investment of ₹4,150 crore (approx. $500 million).

   • They must also furnish a matching bank guarantee, locking in significant financial resources.

3. Domestic Value Addition (DVA) Mandates

   • 25% DVA must be achieved within the first 3 years.

   • 50% DVA must be achieved within 5 years.

   • This ensures gradual localisation of supply chains.

4. Exclusion of Prior Investments

   • Investments already made by companies (such as Vietnamese EV maker VinFast) do not count, discouraging firms already present in India from applying.

5. Application Timeline

   • Registrations are open until 21 October 2025, giving firms several months to decide.

On paper, this framework is ambitious. It balances near-term flexibility (through limited duty cuts) with long-term localisation goals (through value addition requirements).

Why Has the Scheme Received No Applications?

Despite its intent, several factors have discouraged global automakers from participating:

1. High Financial Commitment

• The ₹4,150 crore investment plus bank guarantee is viewed as excessively high, especially since India’s EV passenger car market remains nascent.

• Sales of premium EVs—priced above $35,000—are expected to be small, limiting the business case for such a large upfront investment.

• Firms fear that without volume, recovering costs will be difficult.

2. Waiting for Free Trade Agreements (FTAs)

• Global automakers are watching negotiations for India’s FTAs with the U.S. and EU.

• If these deals materialise, they may secure better import concessions without heavy localisation obligations.

• Hence, companies prefer to wait rather than commit prematurely to SPMEPCI.

3. Strict Eligibility Criteria

• Prior investments do not count towards eligibility.

• For instance, VinFast’s existing plant in Tamil Nadu is excluded, despite being a direct EV investment.

• This sends a negative signal to firms that have already taken risks in India.

4. Lack of Industry–Government Dialogue

• After Tesla’s early engagement, there has been no structured consultation between automakers and policymakers.

• Companies claim they have not been asked for feedback or given clarity on concerns.

• This lack of dialogue makes the scheme appear rigid and disconnected from market realities.

5. Demand-Side Constraints

• EV adoption in India is growing but remains concentrated in two-wheelers and fleet applications.

• The premium passenger EV segment is still price-sensitive and niche.

• Without stronger demand-side incentives, automakers doubt whether localisation can deliver returns.

Implications of the Slow Start

The lack of applications under SPMEPCI has wider implications:

• Delay in Localisation: Without global players committing, localisation of high-value components like batteries, motors, and electronics may be delayed.

• Impact on Domestic Industry: Indian OEMs (Tata Motors, Mahindra, etc.) continue to dominate, but without foreign competition, the pace of innovation may slow.

• Strategic Concerns: Over-reliance on imports from China for critical raw materials and battery technology may persist.

• Global Perception: The poor response risks sending a signal that India is not yet a viable EV manufacturing hub compared to China, Vietnam, or Thailand.

Comparing with Global Models

To understand India’s challenge, it helps to compare with other countries’ EV localisation policies:

• China: Used a combination of subsidies, demand incentives, and strict joint-venture requirements to rapidly build EV capacity.

• Vietnam: Supported VinFast through generous tax incentives and infrastructure backing.

• United States (IRA 2022): Offers billions in tax credits to companies and buyers, but ties them to localisation of battery minerals and manufacturing.

India’s scheme, by contrast, is seen as too rigid upfront and too limited on demand-side support.

Way Forward: How Can SPMEPCI Succeed?

For the scheme to work, several reforms are needed:

1. Flexibility in Investment Thresholds

• Reduce or stagger the ₹4,150 crore requirement, allowing smaller initial commitments.

• Accept prior investments made in India as part of eligibility.

2. Align with Broader Trade Policy

• Integrate SPMEPCI with ongoing FTA negotiations, so automakers do not see competing routes to concessions.

3. Strengthen Demand-Side Incentives

• Expand subsidies for EV buyers in the premium segment.

• Provide fleet electrification support (for taxis, corporate fleets) to create volumes.

4. Engage Industry Proactively

• Open structured dialogue with major automakers.

• Address issues of DVA timelines, technology transfer, and cost recovery.

5. Build Supply Chain Ecosystem

• Invest in battery cell manufacturing, rare earth processing, and component clusters.

• Offer land, logistics support, and R&D collaboration opportunities.

Conclusion

The SPMEPCI scheme reflects India’s ambition to emerge as a global EV manufacturing hub. Its focus on localisation, value addition, and investment is well-placed, but its rigidity has limited appeal. Automakers are hesitant because of high upfront costs, uncertain demand, and competing policy options.

Unless the government recalibrates—through flexibility, trade policy alignment, and stronger industry dialogue—the scheme risks being remembered as a missed opportunity. With the October 2025 deadline approaching, time is running out to make mid-course corrections.

For India to truly localise EV manufacturing and reduce dependence on imports, it must craft policies that balance ambition with realism. Only then will global automakers see India not just as a market, but as a partner in building the future of clean mobility.

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The Source’s Authority and Ownership of the Article is Claimed By THE STUDY IAS BY MANIKANT SINGH