The Union Cabinet has approved a new PLI scheme (production-linked incentive) with a five-year budgeted allocation of Rs. 26,058 Cr for the automobile and auto component industries.
More than half of the advantages promised last year have been cut down to produce electric and hydrogen fuel vehicles together with other incentive programs for the auto sector.
The government stated in a briefing on September 15 that Rs 25,938 crore of the total sum will be allocated to the manufacturing of electric and hydrogen fuel vehicles and components, while Rs 120 crore will be provided to promote the production of drones and their parts.
As a result of this and the previously announced PLI for Advanced Chemistry Cell (Rs 18,100 crore) and Faster Adaption of Manufacturing of Electric Vehicles (FAME) Schemes (Rs 10,000 crore), the production of electric vehicles is expected to see a significant uptick. While the government had previously announced an outlay of Rs 57,043 crore for the auto sector PLI plan, it has now been reduced to Rs 26,058 crore.
According to Information and Broadcasting Minister Anurag Thakur, the PLI plan for the car and auto component sector would result in a new investment of over Rs 42,500 crore, the incremental output of over Rs 2.3 lakh crore, and the creation of over 7.5 lakh more jobs over a five-year period.
He also said that the government has authorized the production link incentive scheme(PLI) tied to output for the automobile, auto component, and drone industries in order to improve India’s manufacturing capacity.
The NITI Aayog CEO, Amitabh Kant has also tweeted, The PLI Scheme for the automobile sector & Drones approved by Govt has an outlay of Rs 26,508 Cr. It will act as a catalyst in areas of advanced automotive segments, help the sector to keep pace with global technological transformation, and participate in global supply chains.
The PLI scheme covers car parts such as electronic power steering, automatic transmission assembly, sensors, sunroofs, supercapacitors, adaptive front lighting, tire pressure monitoring system, automated braking, and collision warning system.
The PLI scheme covers 22 individual elements, including flex-fuel kits, hydrogen fuel cells, hybrid energy storage systems, and electric vehicle components including charging ports, drive trains, electric vacuum pumps, and electric compressors.
Additionally, the scheme may provide incentives for EV components such as high-voltage connections and cables, as well as AC and DC charging inlet and outlet ports.
Many industry leaders have come forward to demonstrate their active support for the scheme, which has been praised for its timely debut and the benefits it would bring to the EV market. However, how precisely does it help both the maker and the consumer and support local EV technology manufacturing?
What is a product linked incentive?
A PLI scheme, which stands for Production-Linked Incentive, offers benefits to businesses in order to encourage local production. As a result, products become more competitively priced, import dependency is reduced, and employment is generated.
A PLI scheme has eligibility requirements, which in this case would be the global turnover of Rs 10,000 crore from an original equipment manufacturer(OEM) and the global revenue of Rs 500 crore from an auto-component manufacturer. Additionally, they must have global investments in fixed assets of Rs 3,000 crore (for OEMs) and a minimum of Rs 150 crore in the automotive component market.
Why PLI is introduced?
The incentives under this PLI, like others, are solely percentage-based, with a maximum of 18% incentives given by the government, depending on the incremental turnover of a business. One of the major goals of the development effort is to foster technologies that India does not have now and can take advantage of concurrently with the Faster Adoption of Manufacturing of Electric Vehicles (FAME) and PLI schemes for advanced chemistry cell (ACC) as well as several others. A PLI of this magnitude can assist in the quick growth of the EV supply and value chain, which has yet to be fully constructed.
According to Thakur, the incentive structure would encourage the sector to increase investment in the indigenous global supply chain for Advanced Automotive Technology products.
Existing automotive firms as well as new investors who are not currently in the vehicle or auto component manufacturing industry are welcome to participate in the auto sector scheme.
PLI scheme components
Component Champion Incentive Scheme and Champion OEM Incentive Scheme are the two parts of the scheme.
According to the minister, the Champion OEM Incentive scheme is a ‘sales value linked’ program that applies to all sectors of Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles.
The Component Champion Incentive scheme is a ‘sales value linked’ scheme that applies to Advanced Automotive Technology vehicle components, Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits, vehicle aggregates comprising 2-Wheelers, 3-Wheelers, passenger cars, commercial vehicles, and tractors.
What does it mean for India’s EV market?
The strategy concentrates on EVs and hydrogen fuel cell vehicles, as well as the parts that go into them. Champion OEM Incentive Scheme and Champion Component Incentive Scheme are the two halves of the program. Hydrogen fuel components, flex-fuel kits, high voltage connections and cables, AC and DC charging inlet and outlet ports, electric motor components, and an electric compressor are some of the 22 products listed.
When a PLI scheme of this size is added to other programs like FAME, various state subsidies, and the ACC program, it gives brands both a direct financial incentive and an indirect one in the form of investments that such a scheme is expected to attract. The government estimates that the PLI scheme would generate investments worth Rs 42,500 crore. Because traditional automakers aren’t included in the PLI, it adds to the growing list of reasons not to invest in conventional powertrains, even if they do hold the majority of the market share throughout the period of the PLI.
As a result of the policy’s potential to increase employment (by as much as 750,000 jobs) in the EV, fuel cell manufacturer, and component sectors, more engineering, and administrative expertise will be directed into EV start-ups and firms wanting to make a big move to EVs. The scheme would also increase profitability for firms like Tesla Motors, which has previously requested tax relief, frequently citing it as a reason for their reluctance to enter the Indian market.
Even though programs such as FAME II and other state incentives have worked to make it simpler for people to buy electric vehicles and create EV infrastructure, no initiative has attempted to streamline the supply chain until now. “The move will bolster the manufacturing ecosystem and serve as a foundation for the whole e-mobility industry,” said Sohinder Gill, Director General of the Society of Manufacturers of Electric Vehicles.
As Gill pointed out, while the scheme permits new entrants to take advantage of the incentives, “most existing small and medium OEMs active in the EV automobile sector and new startups may not be able to qualify for the scheme and will have to operate under the existing standards.”
A 13% incentive is available to OEMs with an incremental revenue of Rs 2,000 crore, while the incentive increases to 16% if the turnover exceeds Rs 4,000 crore over a five-year period. Only companies having a cumulative turnover of Rs 10,000 crore or more would be eligible for an extra 2% incentive. This is absolutely impossible for young electric vehicle businesses to do in the allotted timeframe, particularly at a time when broad acceptance of EVs has not yet begun.
While many in the sector are pleased with the government’s PLI scheme, Rajiv Bajaj, managing director of Bajaj Auto, said he is opposed to any kind of incentive or subsidy since the future cannot be based on subsidies but rather on competitiveness and sustainability.
However, Venu Srinivasan, Chairman, TVS Motor Co, and Girish Wagh, Executive Director, Tata Motors welcomed the scheme.
“The new focus of the PLI scheme on alternative fuels, electric vehicles, and the use of sophisticated technological innovation will assist the sector move quicker to the future technologies,” Srinivasan stated.
“For manufacture of battery-powered electric vehicles and hydrogen fuel cell, as well as their supporting infrastructure and exports, several substantial incentives have been given across the whole value chain,” Wagh said.
He went on to say that the PLI program will help with localization, domestic production, and attracting outside investment.
President of the Automotive Component Manufacturers Association of India, Sunjay Kapur, has stated that the PLI will assist India is growing into an appealing alternative supplier of high-end auto components as the global economies de-risk their supply chains.
That being said, it’s obvious that India is planning far ahead when implementing a PLI of this magnitude. This kind of initiative would have a huge impact on the foundation of India’s role as a manufacturer of emission-free vehicles.