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Attracting FDI Inflow– A Right Move for India’s EV Sector?

Raising a successful business or establishing an untapped market requires a massive number of investments with a high-risk factor.

by Aishwarya Saxena

FDI in Electric VehiclesKeeping a target of full transition from fossil-based fuels to greener alternatives was a huge risk wherein Indians have shown their resilience and foresight with the thriving market of Electric Vehicles (EVs) in the last few years.

However, every business or market requires a stable investment.

Raising a successful business or establishing an untapped market requires a massive number of investments with a high-risk factor.

Nevertheless, the rising levels of dependence on oil imports, high pollution levels, global climate change impacts, and so on were some of the primary factors that drove the country’s government to take such a bold step in the EV market.

A huge part of establishing this robust industry goes to Foreign Direct Investment or FDI in Electric Vehicles Sector of India, which lead to the advent of new manufacturing bases and charging infrastructure.

In terms of investment, FDI in Electric Vehicles Sector has been registered as nearly USD 6 billion in 2021 and is expected to cross about USD 20 billion by 2030 in India’s EV industry as per a recent study.

Current EV Industry Trends in India

EVsCurrently standing at the fifth position globally, India’s automotive industry is expected to become the third largest by the year 2030.

Despite being a nascent market in the EV sector, the massiveness of the domestic market with easier federal policies is driving electric mobility to new heights.

According to the statistics provided by a recent report, EV adoption in India in the passenger vehicle segment is expected to increase by 10 percent by 2040, thus creating about 5% of total sales.

Therefore, to surpass 30 percent electric mobility adoption in India, the country will need nearly 800 GWh of batteries by 2030. This is only possible when the local manufacturing factory starts producing the needed amount which in turn needs high influx of domestic funds as well as FDI in Electric Vehicles Sector.

Capitalizing on government subsidies worth USD 2.3 billion along with steady FDI in Electric Vehicles with a potential worth of over USD 7.5 billion, India has ramped up its plans to produce Li-ion cells within its borders while promoting other battery technologies for large-scale deployment by 2025.

Similarly, another recent report by Indian Energy Storage Alliance (IESA) claims that the EV industry of India will rise at a CAGR of 36% until 2026 and to expect a CAGR of 30% in the EV battery sector.

In turn, these high figures require a heavy inflow of FDI in the Electric Vehicles Sector, which is the need of the hour.

FDI in Electric Vehicles– Investment Outlook

fdiBeing the frontrunner in any untapped market is always a profitable venture if handled properly.

And this is what we witnessed in India’s budding EV Market when domestic start-ups sprouted to grab this opportunity wherein companies like OLA Electric Mobility Pvt, Ather Energy, and Mahindra Electrics made their entry into the EV sector with innovative offerings.

Apart from Central Government’s initiatives and policies issued for promoting electric vehicles like National Electric Mobility Mission Plan 2020 (NEMMP), FAME-I & II as well as National Mission on Transformative Mobility and Battery Storage, among others, certain states like Karnataka and Tamil Nadu are also launching their own innovative and investor-friendly policies to attract FDI in Electric Vehicles while focusing on building the necessary infrastructure.

Setting a prime example of successful inflow of FDI in Electric Vehicles Sector, Karnataka has grabbed the first position while recording the highest FDI in two successive quarters of the fiscal year 2021-2022.

In the first two quarters of 2021-2022, Karnataka recorded a total of 48 percent and 41 percent inflow of FDI in Electric Vehicles in India, respectively.

According to Colliers, a Canadian commercial real estate brokerage professional services and investment management company, States like Delhi, Gujarat, Maharashtra, and Meghalaya are majorly focusing on demand incentives, wherein southern states and Uttar Pradesh are more focused on manufacturer-based incentives.

Final Thoughts

Charging StationsTo achieve a steady flow of FDI in Electric Vehicles Sector, the Government’s ease in policies regarding 100% FDI inflow, excellence of local firms, as well as a pro-development bureaucracy and attractive incentives are some of the major factors that can drive the growth of the EV industry in India.

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