GoI rejects Chinese EV maker, BYD’s plan to set up a $1 billion dollar plant in India; Here’s why

A few days ago, BYD, also known as Build Your Dreams, one of the world’s largest electric vehicle (EV) manufacturers, announced that it plans to invest $1 billion in India and set up a factory for making EVs and batteries in the country. They also announced that the plant will be set up in partnership with Hyderabad-based Megha Engineering and Infrastructures Ltd.

However, recent developments show that the Indian government has rejected BYD’s proposal. The companies had jointly applied to the Department for Promotion of Industry and Internal Trade (DPIIT) to set up an electric vehicle plant in Hyderabad.

Why India rejected a $1 billion plant from BYD
During the evaluation process, various departments were consulted for their input, and concerns related to security, particularly regarding Chinese investments in India, were raised.

According to officials familiar with the discussions, existing regulations do not permit such investments from China. The proposal put forth by the partnership aimed to manufacture 10,000-15,000 electric cars annually, with Megha providing the capital and BYD contributing the technology and know-how.

This rejection is consistent with the ongoing tensions between India and China, which have been affecting the business endeavours of Chinese companies in India. Notably, Great Wall Motor, another Chinese automobile manufacturer, faced a similar setback last year when its proposed $1 billion investment plan was unable to secure government approvals.

The background to these investment policies lies in India’s 2020 policy, which was implemented after hostilities with China. The policy imposed restrictions on Foreign Direct Investments originating from China, mandating prior approval for investments from nations sharing land borders with India. This policy has been perceived by experts as anti-China. In May of this year, the Indian government also introduced measures to scrutinize Chinese companies attempting to bypass this rule by using shell companies and availing subsidies usually denied to Chinese businesses.

BYD’s growing presence in India
Despite this setback, BYD currently operates in the Indian market, offering two fully-electric cars – Atto 3 and e6. The company plans to launch its Seal EV in India by the end of the year, which was showcased at the 2023 Auto Expo. The introduction of the Seal EV is expected to follow a similar route as the Atto 3 and e6, using semi-knocked down kits (SKD).

Industry insiders have told Firstpost that there is a substantial fear that Chinese EV brands manufacturing in India will bring several challenges. First, Chinese companies operating in India have a history of fraudulently dodging taxes and underreporting their tax liabilities. Second, bringing physical components from China to a Chinese-owned company in India opens up a Pandora’s box of potential issues and problems.

India’s Tesla Dreams
Meanwhile, discussions are ongoing between the Indian government and Tesla, owned by US billionaire Elon Musk, for establishing a factory in India. While the government has shown interest in Musk’s proposals, it has not offered any additional incentives or tax breaks, requiring Tesla to apply under the existing incentive plans for EVs.