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08 April 2022

The Road to A Self-Reliant India

The concept of a ‘self-reliant India’ is not a new one: almost since partition in 1947, the phrase began to appear in multiple Five-Year Plans issued by the country’s former Planning Commission. Even before that, the concept was one of the central tenets of the Swadeshi movement, a pre-independence self-sufficiency movement that culminated in Ghandi’s pledge to boycott foreign goods and the symbolic burning of English cloth, which itself echoed the earlier actions taken by Ram Singh Kuka, who is widely believed to be the first British Indian to use non-cooperation as a tool in the service of Indian independence at the beginning of the 20th century.
 
Many decades later, in 2014, the current Prime Minister Narendra Modi and his government revived the phrase as part of their political and economic programme to move India to a more prominent and significant role within the global economy. In 2020, the Hindi translation ‘Atmanirbhar Bharat’ came to prominent use in India’s COVID-19 response and has since seen increasing use in government communications and policies. While it is used across multiple departments and areas of economic activity, it has a particular relevance to the automotive sector with its reliance on global supply chains. In short, how can a self-reliant India, with its focus on homegrown manufacturing and supply, accommodate those foreign companies with whom they wish to do business?
 
It has been estimated that the Indian electric vehicle (EV) market will be worth approximately US$206bn by 2030. EV sales in India constitute only 1% of all vehicle sales in the country, but these are rising, with new monthly registrations of around 50,000. This represents an attractive opportunity for global players such as Audi, Tesla and Hyundai, to name but a few. However, these companies prefer to do business on their own terms, and, in this case, this means selling ‘completely built units’ (CBU), which is to say, complete, finished cars, built elsewhere and shipped in. These CBUs attract import duties, though, and in India, these run at 100%, making the final price to consumers prohibitively expensive and no doubt what Elon Musk meant when he said in a Tweet that his company was “facing a lot of challenges” making its vehicles available in India.
 
Several regional governments in India responded by issuing open invitations to Tesla to open factories in their states, citing manufacturing-friendly policies and support such as those laid out in the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles Scheme-II (FAME-II) and in several Production Linked Incentive (PLI) schemes. In mid- 2021 FAME-II was updated, with the aim of accelerating the uptake of EVs in India. The amount of subsidy available to consumers increased by 50% from INR10,000 to INR15,000 (approximately £99 to £148) per kWh of battery capacity and the maximum subsidy was increased from 20% to 40% of the total cost of the vehicle. These changes meant that EVs would be cheaper to buy and, therefore, attractive to new customers in new markets but also, and perhaps more importantly, that this market penetration would in turn grow the ancillary services and support needed by an EV transport network.
 
Key players in the Indian EV sector, including Suhas Rajkumar, Founder, and CEO of Simple Energy, Bhavish Aggarwal, Chairman and Group CEO, Ola, Rahul Sharma, Founder, Revolt Motors and Jeetender Sharma, MD & Founder, Okinawa Autotech, responded positively to the update and identified that while these changes would initially benefit the manufacture and sale of two-wheeled EVs, the improvements to the underlying infrastructure and the growth of component supply chains would feed into the perhaps longer-term uptake of four-wheeled EVs. Crucially, all spoke of India being at a turning-point in terms of EV uptake, and most identified India as being both a future huge market and a key supplier of EVs, components and infrastructure, firmly ensconced in the global EV revolution and highlighting that self-reliance needn’t mean insularity.
 
It is impossible to predict who will ‘blink first’ in this standoff: Elon Musk has insisted that he wants to first develop a market for his vehicles by being able to sell them in India, with a reasonable assumption being that he could begin manufacturing there if sales warrant it, and he is supported in his calls for a reduction in import duties by other manufacturers. However, Narendra Modi seems as insistent that duties remain in place to grow and support the nascent native sector. That said, whether or not Tesla, or any other foreign company, can or cannot manufacture or sell their vehicles in India isn’t really the interesting question: India is potentially the biggest untapped market for EVs so the question is, why should foreign investors be interested?
 
It certainly has the skilled workforce needed for large-scale, complex manufacturing and access to the renewables that underpin a truly Green economy. Add to this the aforementioned government support and India’s policy of allowing 100% foreign direct investment and it perhaps will eventually become a question of whether India needs Tesla at all?
 
This article was taken from the Winter 2022 issue of 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
The Road to A Self-Reliant India
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