Rare earth magnet curbs, FTA uncertainty stall govt's ambitious electric car manufacturing scheme

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The Union  government has acknowledged that global automobile manufacturers have refrained from submitting any application under the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), despite extensive outreach by the Ministry of Heavy Industries (MHI) ahead of the October 21 deadline.

In a written reply to Parliament, the ministry said original equipment manufacturers (OEMs) have conveyed that their decision to participate in the scheme is contingent upon the outcome of the ongoing India–European Union (EU) free trade agreement (FTA) negotiations, which could influence their investment and localisation plans for India.

The ministry confirmed that no application has been received under the scheme so far. It added that companies have raised concerns about restrictions on the use of rare earth magnets, a critical input in electric vehicle (EV) motors, as this could affect their ability to meet the scheme’s stringent domestic value addition (DVA) requirements.

Automakers have also cautioned that the minimum investment commitment of Rs 4,150 crore and the tight three-year timeline to set up manufacturing facilities may pose challenges given current supply chain uncertainties.

SPMEPCI, notified in March 2024 and detailed earlier this year, is a key element of India’s strategy to build a strong domestic EV manufacturing ecosystem and reduce dependence on imports. The scheme allows eligible companies to import a limited number of fully built electric cars at 15 percent duty — significantly lower than prevailing tariffs — for five years, provided they commit to manufacturing in India and gradually increase DVA to 50 percent within five years of approval. Applicants are also required to furnish a bank guarantee covering the duty foregone or the committed investment to ensure compliance with localisation targets.

The ministry said it has undertaken “extensive stakeholder outreach” to encourage participation, including consultations during formulation of the scheme, engagement with foreign embassies, Invest India, state governments and other investment promotion agencies. A stakeholders’ meeting was held recently to address queries raised by OEMs and “discuss the way forward”, it informed the Parliament.

Asked if the scheme will be revised or the deadline extended, the ministry replied that “no such proposal is presently under consideration”. It further noted that no assessment has been made regarding delays to India’s EV manufacturing ambitions but acknowledged that OEMs have indicated they may take a decision on participation only after the India–EU FTA concludes.

SPMEPCI is central to the government’s target of positioning India as a global EV hub under Make in India and Aatmanirbhar Bharat. However, the first application window closing without a single bidder underscores the scale of industry hesitation — driven by geopolitical trade uncertainty and critical mineral supply constraints — that the government may now have to bridge to make its electric car vision a reality.