Battered by an economic slowdown in the market, followed by the double whammy of the COVID-19 pandemic and subsequent shortage of semiconductors, the Indian automotive industry had been waiting for a long time for the government to announce the promised Production Linked Incentive (PLI) scheme.
The Central Government had announced last year that a PLI scheme for the automobile and auto components sector would be rolled out with an outlay of INR 57,043 crore for a period of five years. While the industry waited with bated breath, the Union cabinet ultimately decided to reduce the outlay for the sector to INR 25,938 crore to shift focus on hydrogen fuel vehicles and electric vehicles.
This amount – INR 25,938 crore, incidentally is the highest of all PLIs announced by the Government so far.
Anurag Thakur, Union Minister of Information and Broadcasting said while announcing the scheme that the reduction is in sync with the technology leapfrogging India has committed towards environmentally cleaner vehicles. The new PLI scheme will work hand-in-hand with the FAME-II scheme, and the PLI scheme for advanced cells, he said and therefore, meet all the requirements of the electric vehicle ecosystem in India.
Under the PLI scheme, the government has also allotted INR 120 crore to the drone sector for the next five years. The government expects the PLI scheme for drones to attract fresh investments of over INR 5,000 crore in the next three years, and incremental production of over INR 1,500 crore.
In the automotive sector, the scheme is expected to bring in fresh investments of over INR 42,500 crore, along with an incremental production of over INR 2.3 lakh crore and additional employment of over 7.6 lakh people over the next five years.
Who will Benefit From Auto PLI Scheme?
The auto PLI scheme would largely benefit new age technologies such as electric vehicles and hydrogen fuel cell vehicles (HFCV) and components for BEVs, HFCVs, CKD/SKD kits for passenger & commercial vehicles, and tractors, etc.
The scheme is divided into two parts – Champion OEM Incentive Scheme and Component Champion Incentive Scheme.
Companies, who operate in manufacturing of battery electric vehicles and fuel cell vehicles with minimum turnover of INR 10,000 crore and shall invest up to INR 2,000 crore (for four-wheelers) and INR 1,000 crore (for two-wheelers/three-wheelers) in fixed assets over five years are eligible for the Champion OEM Incentive Scheme.
Similarly, auto component manufacturers, who work in manufacturing of advanced automotive technology components of vehicles and completely knocked down units with a minimum turnover of INR 500 crore and shall invest INR 150 crore in fixed assets over five years are eligible for the Component Champion Incentive Scheme.
Industry experts Mobility Outlook spoke to said the auto PLI scheme is very well spread for futuristic technology, which will impact and influence the future developments. But the PLI scheme completely corners the existing automotive industry, which has already invested huge sums in petrol and diesel technology.
Non-automotive investors can avail the scheme if they have a global net worth of INR 1,000 crore and clear business plan for investment in new automotive technologies.
Minimum Investment Criteria For OEMs & Auto Component Manufacturers
What Industry has to say about the Auto PLI Scheme?
The apex bodies of the industry, SIAM and ACMA welcomed the scheme announcement for the auto and auto component sectors.
The PLI Scheme commencing FY23, will incentivise investments in new age automotive technologies such as automatic transmission assembly, electronic power steering system, sensors, super capacitors, ECUs, Parts of EVs, Hydrogen Fuel Cells and its parts, adaptive front lighting, automatic braking, tyre pressure monitoring system, and collision warning systems, among others, said ACMA.
Sunjay Kapur, President, ACMA said the thrust on incentivising new age technologies will facilitate creation of a state-of-the-art automotive value chain in the country and give a much-needed impetus to manufacturing of cutting edge automotive products in India. “Further, with global economies de-risking their supply chains, the PLI will aid India in developing into an attractive alternative source of high-end auto components,” Kapur said.
Thanking the government for announcing the scheme, SIAM said the scheme will contribute towards reducing carbon emissions and oil imports with local manufacturing. “The scheme shows Government’s commitment to support Indian auto industry by incentivising battery electric and hydrogen vehicles and a selected list of auto components. It reinforces Government’s focus on encouraging local investments and manufacturing, thereby building an Atmanirbhar Bharat,” Kenichi Ayukawa, President, SIAM was quoted as saying.
Several industry captains welcomed the announcement. Vipin Sondhi, MD & CEO, Ashok Leyland and Vice President, SIAM said the scheme has the potential to substantially increase volumes and will provide a huge opportunity for exports to grow. He said the scheme is being announced at an opportune time for India as the auto industry realigns its supply chain globally. This will help India to capitalise on this changing scenario, to become an integral manufacturing base for the world, he said.
Girish Wagh, Executive Director, Tata Motors called the scheme both progressive and transformational, while Shailesh Chandra, President, Passenger Vehicle Business Unit, Tata Motors said the scheme which will help in accelerating transition to smart, environment-friendly, sustainable mobility solutions.
Dr Anish Shah, MD & CEO, Mahindra & Mahindra and Rajesh Jejurikar, Executive Director, Auto & Farm Sectors, M&M also welcomed the scheme. The scheme is a giant step in the right direction towards India’s promise to be one of the largest EV markets in the world, said Dr Shah. Jejurikar termed the auto PLI scheme a transformational move that has potential to create a multiplier effect for both clean mobility and also for the economy.
Mahua Acharya, Managing Director & Chief Executive Officer, Convergence Energy Services (CESL) said the Central government has walked the talk and now it is the turn of the automobile industry to respond with positivity. “The increased investments and technological innovations will not only decrease the cost of inputs of EVs as it will give boost to domestic production of batteries. This augurs well for a future of green transport and will help big time in energy transition goal,” she said.
In Conclusion
The must awaited PLI scheme for the automotive sector is certainly a welcome development, and should come as a succour to the industry. It is expected to bolster production of new-age, cleaner and environment-friendly vehicles. The move to incentivise EVs, alternate fuels and advanced technologies such as ADAS and ABS is certainly well considered.
Despite the difference in allotment of what was initially committed and what has eventually been laid out, most industry experts have called the scheme a well-balanced act.
Saurabh Kanchan, Partner, Deloitte India summed it up by saying, “With this PLI support combined with the ACC battery PLI, FAME-II and State EV policies for investment subsidies as well as demand side benefits, EVs in India stand substantially incentivised. Substantially reduced GST rate and corporate tax deductions only add to the overall proposition. The missing links appear to be the charging infrastructure, battery ecosystem and last mile bank finance.”