The proposed India–EU free trade agreement (FTA) could play a decisive role in shaping the trajectory of electric vehicle (EV) manufacturing in India, the ministry of heavy industries has informed Parliament.

The ministry’s admission comes after its flagship incentive scheme for promoting domestic EV production did not garner a response before the October 21 deadline.

Earlier this year, the government unveiled a scheme to promote manufacturing of electric passenger cars in India with the objective of positioning India as a competitive EV manufacturing hub. The scheme offered a concessional customs duty of 15 per cent for five years on imports of completely built units (CBUs), provided participating firms set up manufacturing plants in the country. In addition, manufacturers were required to commit a minimum investment of ₹4,150 crore and meet domestic value addition (DVA) norms of 25 per cent within three years, increasing to 50 per cent within five years.

However, the ministry noted that original equipment manufacturers (OEMs) have cited three primary concerns for not applying. These include uncertainty over the outcome of the ongoing India–EU FTA negotiations, restrictions on rare-earth magnets that could hinder localisation targets, and high investment thresholds and strict compliance timelines associated with the incentive scheme. OEMs have communicated that participation decisions are contingent on greater clarity around tariff structures, technology sourcing and supply chain rules expected under the FTA.

The ministry, however, said that during recent stakeholder consultations, OEMs have conveyed that they may take a decision regarding participation in the scheme post finalisation of the India-EU FTA.