India hopes Musk’s potential entry goes beyond Tesla; include battery tech, Starlink, says DPIIT Secy

On what billionaire Musk is expected to announce, the secretary said it is for Tesla to clarify that. The Tesla chief’s meeting with Modi is likely on April 22, after which a general announcement is expected on Tesla’s entry into India, Moneycontrol reported on April 16.

The DPIIT secretary exclusively spoke to Moneycontrol on a range of issues - from the need to move towards a lower tariff regime to the compliance ecosystem for fintech startups. Edited excerpts:

How do you view the tax incentives in the new EV policy? There is a sense that it gives global EV makers an edge over domestic players.

The reception to the EV policy was quite positive and there is hardly any backlash. No one is saying that it will be disruptive for local manufacturers for the simple reason that domestic makers do not have vehicles at that price point right now at which these vehicles from global players are being allowed to be imported at a lesser duty.

Local manufacturers may launch vehicles at that price point in the next one or two years, so they should be able to compete with them. I won’t even call it (duty cut in EV policy) concessional because 15 percent duty is a standard duty rate in most other countries. It is concessional vis-à-vis the exorbitant duties that we levy.

We have also taken care of the interests of domestic EV makers in terms of quantitative restrictions on the number of vehicles allowed and have also put stringent investment and domestic value-added criteria. So, with this combination, we have finetuned the policy in such a way that we meet several objectives in terms of consumer choice, reduction in dependence on fossil fuels, reduction in air pollution, and other environmental benefits while also ensuring that we set up a large EV ecosystem in India without necessarily creating a disruptive impact on the existing domestic market.

The policy is laid out not only for Tesla - but also for any company which wants to come. VinFast has already made the announcement. It is for Tesla to clarify what they may want to announce.

But obviously, we welcome the presence of major manufacturers like Tesla, not only because of automobiles. Hopefully, once you are in a country, you will bring your other projects as well - whether it is battery technology or whether it is Starlink for that matter. I am hopeful the Tesla (chief) will bring all kinds of innovative projects to India, including EVs.

So, it is a positive for India and we hope it will come and we hope it is the first of many.

Should India move towards a lower tariff regime?
As we forge new FTAs (free trade agreements), the tariff regime will come down. Once we provide certain sectors with reimbursement of their cost-disability through schemes like PLI (production-linked incentive), with the fact that we have taken care of logistics inefficiencies, in many other areas, over time, there is a case for moving towards a lower tariff regime simply to ensure that our domestic industry becomes competitive and starts exporting more. If they hide behind tariff walls, they will never be competitive.

GST on fully electric vehicles is at 5 percent, all others are at 42 percent. Our view is hybrids - since they are more efficient than EVs and they reduce carbon emissions - their rate should be somewhere in between. That rate need not be as high as fossil fuel vehicles, and it also need not be as low as electric vehicles...

I agree with what Mr Gadkari said but this is a call that the ministry of heavy industries will have to take. After all, at the end of the day, consumers’ choice is important and some consumers, because of range anxiety, prefer hybrid cars.

The finance minister took proactive steps immediately when it came to fintech startups in particular. We had a meeting. I was present in the meeting. Complete reassurance was given to the other major fintech players that while regulatory compliance will be imposed, they will be helped with compliance in terms of more clarity and monthly interactions through the RBI route. And they will be helped also in terms of compliance facilitation by other agencies including the corporate affairs ministry or DPIIT for FDI (foreign direct investment). The idea was to reassure them that subject to them complying with the regulatory regime, the government will go out of its way to even facilitate their compliance in terms of handholding. That was broadly the message, and the message went down very well with the fintech startups.

There could be measures or ways to give them (startups) more clarity by creating a regulatory sandbox in certain areas. We could do more interaction, we could also mentor or handhold them on some of these compliance-related issues. Those are ongoing issues. But one-off incidents, whether it is one edtech startup or one fintech startup, I don’t think impact the startup community as whole at all. But they have to work on two things – they will have to ensure compliance - after all, it is a legal requirement, and on utilisation of funds, they have to be more prudent because unless you create revenue streams, you can’t just burn cash and expect the market not to react somewhere down the line.

You said in a recent interview that Rs 6,800 crore has been disbursed to beneficiaries of PLI schemes in FY24 and that schemes on textiles, bulk drugs, food products and solar PV modules are likely to be tweaked. Earlier in the year, you expected about Rs 13,000 crore in disbursements. What is stopping the PLI scheme - beyond electronics - from taking off?

The PLI scheme, in some areas, is overachieving – electronics, mobile manufacturing, bulk drugs, pharma, drones, medical devices, and to a lesser extent, telecom and white goods have done well in the last fiscal. But textiles, steel have not disbursed so much.

The more important thing, in our view, is investment targets have largely been achieved based on their timelines. Sales targets have also been achieved. Incentives in this scheme are backended. But underachievement in certain sectors has been more than compensated by overachievement in the sectors that I mentioned.

Employment target, we have reached 8 lakhs, which is slightly lower than what was planned at this stage. Only in incentives there is a shortfall, but that is not worrying because the focus is on investing, getting commercial production going, and sales thereafter. As long as investments are coming in, we are confident incentives will pick up somewhere down the line.

Policy decisions on reviewing the PLI scheme will be taken up by the next government. The disbursement figure for the last fiscal is around Rs 6,000 crore, cumulatively it is Rs 9,700 crore so far.

FDI in India has fallen almost 40 percent in the first 10 months of the previous financial year. Are you worried about this trend? What’s causing the fall and what can India do to correct this?

The reasons for the recent fall in FDI are geopolitical instability, sticky inflation in some developed markets, and high interest rates in those areas as a result. But we feel FDI inflows should be looked at a three-year or five-year average rather than annually because the former gives a better picture.

Our FDI inflows, on an average, were $30-35 billion in 2013-14, then they rose to an average of $70 billion with a high of $85 billion in 2021-22. There is a trend increase which is happening, so we hope that it will go up further, now that we have done so much on ease of doing business and logistics. Our target is that we should now average closer to $100 billion over the next five years or so and we are confident that it can be done.

The FDI policy in India is already very liberal, but we can always liberalise it further. But India as a preferred investment decision is based on its status as a fast-growing economy, a combination of macro and political stability, the fact that consumer goods have a much faster expanding market here than anywhere else in the world and also because there is government push towards infrastructure and ease of doing business.

That combination of factors is what brings in FDI - not so much individual liberalisation in FDI sectors, where we have already done significant liberalisation. India is the 8th most-attractive investment destination in the world. Hopefully, we will get into the top 5 in the next one or two years.

EFTA is a good template - innovation in a trade agreement where we weaved in an FDI requirement. We hope we can bring it in other FTAs as well. India provides a vast market to other countries and their own markets are small, so they don’t offer us much in return, so they should offer us investment and technology. Smaller nations may be a good pick for built-in FDI requirements in FTAs and we may try it in other trade pacts.