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Production Linked Incentive Scheme (PLI) for Automobile & Auto Components

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Production Linked Incentive Schemes in India

What is a PLI Scheme?

Production Linked Incentive schemes (PLI), was introduced in March 2020. It is the sum of the government incentives that are linked to the manufacturing performance of companies. This scheme will help India is aiming for a position as a global manufacturing hub by improvising its local supply chain, downstream operations, and investing in high-tech production. It is an old and popular tool with governments to spur the production of a good that is necessary for social goods, taxes.

PLIs could be of any form it could be; tax rebates, import, and export duty concessions, or even maybe easier land acquisition terms. The benefits are passed on to the final customers of the goods in terms of a lower price.

The vision of NPE 2019 (National Policy of Electronics) is to make India a global hub for Electronics system designs and manufacturing. They are planning to do it by encouraging and driving capabilities in the country to develop core components and create enabling environment for the industry to compete with the products manufactured globally.

There are 13 sectors under the PLI scheme –

1. Auto Components

2. Automobile

3. Aviation

4. Chemicals

5. Electronic system

6. Food processing

7. Medical devices

8. Metals and Mining

9. Pharmaceuticals

10. Renewable Energy

11. Telecom

12. Textiles & Apparel

13. White Goods

Each scheme is applicable for 3-6 years of time duration; it depends on the sector.

What’s interesting in the PLI scheme for the Automobile and Auto components Industries?

The federal government of India approved the PLI scheme for automobile and auto components on Sep 15, 2021. The government – approved a budgetary plan of Rs 259.38 billion (US$ 3.50 billion) which will help in boosting the manufacturing capacity and production of electrical & hydrogen-fueled vehicles. The scheme is applicable for 5 years. This will help in pushing forward our country’s transition to clean energy along with elevating India’s share in the global automotive trade business (component and unit production ). 

This scheme will help in incentivizing the cost of effective manufacturing of the state-of-the-art automotive technology of vehicles & the products i.e.; sunroofs, automatic gears, warning system, adaptive front lighting, etc.

The PLI scheme shall incentivize the makers of cutting-edge automotive technologies or auto components only. This scheme is available for both the existing as well as the new investors in the market. The scheme draft includes 4 mega schemes –

  • Component  Champ
  • Global- sourcing
  • Vehicle- champ
  • Product- linked- Bonuses or incentives

The Indian government and its representatives have been exceptionally transparent with their objective; that is to offer financial bonuses to improve the local manufacturing of the cutting edge automotive-technology- based products which are made in the country and attract investments in the manufacturing chain of values. Anyhow, OEMs and component production firms need to fund it first so that they can receive the incentives.

The scheme prohibits petrol, CNG, & diesel segments as these energy sources have sufficient capacity in the country. 

According to ICRA (Investment Information and Credit Rating Agency of India Limited), The PLI incentives are liked to sales and are touted to be in the range of 13-18% on the computed sales value of the OEMs and 8-13% on the calculated sales value for the auto component manufactures. 

When tier-I is scaled up, tier-II will be directly benefited. It will also attract foreign investment in India. This process will help in capitalizing on the global economic supply chain. The production and export of advanced technology and automotive components will help compensate for the loss of revenue from the traditional components to an extent as overseas markets move into EVs (Electrical Vehicles) in the near future. Besides all this, the PLI scheme will also lead to the promotion of next-generation safety in technology to make Indian roads safer.

Some Key guidelines for PLI schemes approvals are-

1. Eligibility criteria for current automotive firms – The existing company should have an Auto OEM of min INR 100 billion and an Auto component of min 5 billion. A global investment of Auto OEM company in fixed assets should be INE 30 billion and of Auto component 1.50 billion.

2. Eligibility criteria for fresh automotive companies – Companies that qualify for this category are; who have no revenue from the manufacturing of automobiles or auto parts as of March 31, 2021. To get a PIL scheme they have to present a clear business plan which shows how their company will invest in the development of the country and will generate revenue from the advanced automotive-technology vehicles or from advanced-technology components they are manufacturing.

3. Minimum latest cumulative domestic investment criteria – This has to be accomplished by all the companies whether it’s an existing automobile or nonexistent automobile company from Apr 1, 2021.

4. Incentive Brackets for Champion of OEM and New Non-Automotive (OEM) Investor Company

INCENTIVE BRACKETS FOR CHAMPION- OEM & NEW NON AUTOMOTIVE INVESTOR FIRM-

Calculated Sales Value (Billions)

Incentives (% of calculated sales value)

Less than or equal to INR 20 billion

13%

Greater than INR 20 billion – INR 30 billion

14%

Greater than INR 30 billion – INR 40 billion

15%

Greater than INR 40 billion

16%

Cumulative Calculated sales turnover value of INR 100 billion for more than 5 years

Extra 2%

INCENTIVE SLABS FOR COMPONENT – CHAMPION AND NEW NON AUTOMOTIVE COMPONENT INVESTOR COMPANY-

Calculated Sales Value (Billions)

Incentives (% of calculated  sales value)

Less than or equal to INR 2.5 billion

8%

Greater than INR 2.5 billion – INR 5 billion

9%

Greater than INR 5 billion – INR 7.5 billion

10%

Greater than INR 7.5 billion

11%

Cumulative Calculated sales value of INR 12.50 billion over 5 years

Extra  2%

Battery Electric vehicles and Hydrogen fueled   vehicles components

Extra 5%

Final Thoughts!

Despite the mega schemes and policies provided by the Indian government, the share of the investment is very low for e-mobility on the back of scalability and infrastructure constraints. Some firms with limited product diversity and bottlenecks on capacity will find it difficult to clear the strict eligibility criteria. However, auto giants of the sectors need to organsie and plan their investment according to the latest technology in EV space.

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