The Auto Industry Reacts To Cabinet Approval of ₹ 26,058 Crore Production Linked Incentive (PLI) Scheme

PLI Scheme for the auto sector will bring fresh investments of over₹42,500 crores in five years and incremental production of over ₹ 2.3 lakh crore

The Cabinet, on Wednesday, approved the PLI Scheme for the Automobile Industry and Drone Industry with a budgetary outlay of ₹ 26,058 crores. The incentive structure will encourage the industry to make fresh investments for the indigenous global supply chain of Advanced Automotive Technology products. It is estimated that over a period of five years, the PLI Scheme for Automobile and Auto Components Industry will lead to a fresh investment of over  ₹42,500 crores,  incremental production of over  ₹2.3 lakh crore, and will create additional employment opportunities of over 7.5 lakh jobs. Further, this will increase India’s share in the global automotive trade.

The PLI Scheme for the auto sector has two components viz Champion OEM Incentive Scheme and Component Champion Incentive Scheme. 

The Champion OEM Incentive scheme is a ‘sales value linked’ scheme, applicable on Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments. The Component Champion Incentive scheme is a ‘sales value linked’ scheme, applicable on Advanced Automotive Technology components of vehicles, Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles, and tractors, etc.

This PLI Scheme for the automotive sector along with the already launched PLI scheme for Advanced Chemistry Cell (ACC) (₹18,100 crores) and Faster Adaption of Manufacturing of Electric Vehicles (FAME) (₹10,000 crores) will enable India to leapfrog from traditional fossil fuel-based automobile transportation system to environmentally cleaner, sustainable, advanced and more efficient Electric Vehicles (EV) based system.

Society of Indian Automobile Manufacturers (SIAM) in a statement thanked the Government for launching the much-awaited PLI Scheme for the Indian Auto Industry covering vehicle and component manufacturers allocating Rs. 25,938 Cr is the highest of all PLIs announced by the Government so far.

“SIAM is grateful to the Hon’ble Prime Minister, Hon’ble Minister of Heavy Industries, Secretary Heavy Industries, and all other policy makers in the Government involved in launching the PLI Scheme for the auto industry. The scheme will contribute towards reducing carbon emissions and oil imports with local manufacturing. SIAM will be happy to engage with the Ministry of Heavy Industries for detailing and fine-tuning, execution and further strengthening the scheme.” Said SIAM President, Mr Kenichi Ayukawa

Automotive Component Manufacturers Association of India (ACMA), the apex body representing India’s auto component manufacturing industry, welcomed the much-awaited Production Linked Incentive (PLI) Scheme for auto and auto component sector. In Statement released to the media ACMA said The PLI Scheme 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. 

Sunjay Kapur, President ACMA said, “ACMA is grateful to the Hon’ble Prime Minister of India, Shri Narendra Modi for the announcement of the PLI scheme for the auto and auto components industry. In accordance with our national priorities of energy security and climate change & environment, the PLI scheme envisions creation of an ‘Atmanirbhar’ (self-reliant), globally competitive and future ready Indian automotive sector. 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”.

Commenting on the developments, Sohinder Gill, CEO, Hero Electric & Director General, Society Of Manufacturers Of Electric Vehicles said, “Since the amendments to FAME in June, we have seen a wonderful response to EVs from the consumer end and now with the PLI scheme, we expect the same to come in from potential investors and companies looking to invest in technologies that will make products for cleaner modes of transport. The allotment of Rs.26,000 crores will help in creating the initial push required for the industry to further take off and encourage further adoption of EVs- two, three and four-wheelers. We welcome the move and look forward to working with the policy makers to create an environment that helps India achieve the goal of being the world’s largest manufacturing hub for cleaner modes of transport

Mr. Naveen Munjal, MD, Hero Electric said, “The recent announcements by the Govt of India over the last few months have helped propel the EV industry onto its next level. The earlier push through amendments to FAME II and added revisions by various states have been absolute game changers in bringing down the prices of EVs. With this announcement of allocating a total of Rs. 26,000 crores to encourage and push adoption of cleaner mobility and technologies, this sector is poised to grow exponentially from here on. The outlay for OEM makers and other incentives on manufacturing auto components that help making transportation cleaner will encourage investments and further drive localisation. This will further help bring down the cost of manufacturing thereby benefiting the consumer, the industry and the environment. Hero Electric supports the government’s initiative and looks forward to leading the new phase of electric mobility in the coming years.”

Shailesh Chandra, President, Passenger Vehicle Business Unit, Tata Motors. said “As a homegrown leading automotive brand in India, we at Tata Motors are delighted to see the new Production-Linked Incentive (PLI) scheme announced today. The government has taken a holistic approach to make India 'Aatmanirbhar', especially in technology areas, that will be relevant and important in future. The scheme promotes manufacturing, export of electric vehicles and those running on hydrogen fuel cells, their supporting infrastructure, as well as new technology auto parts requiring advanced production techniques. A progressive scheme which will help in accelerating transition to smart, environment-friendly, sustainable mobility solutions. The automotive ecosystem will benefit tremendously as more jobs will be created, component manufacturers can plan their future roadmap better and achieve scale. It is indeed a very strong resolve shown by the government to fulfill the aspiration of India, by becoming a global manufacturing hub of green mobility."

“The revised focus of PLI scheme on alternative fuels, electric vehicles and utilization of advanced technological innovation, will help the industry move faster towards the future technologies. There is a sense of haste in developing these technologies in India and this scheme gives the right impetus to the industry to move rapidly in that direction. Any country which aspires to lead in a particular sector needs government support and this scheme aims to do just that in the future mobility space. The pandemic has taught us the essence of Aatmanirbharta in every aspect possible. Hence, this is a significant push by the government for its workforce, organizations (OEMs), and the consumers to seek competitive, diverse, and climate-conscious mobility solutions and a progressive India.” – VENU SRINIVASAN, CHAIRMAN TVS MOTOR COMPANY

Rajeev Singh, Partner and Automotive Leader, Deloitte India said “Auto is one of the most important sectors contributing to 7.1% of our GDP and employs about 37 mn people directly & indirectly. The sector has been under stress even before COVID and then subsequently has been hit hard due to chip shortage. This PLI scheme was much awaited and will help in boosting production of new age vehicles which are more clean and environment friendly. It will also help in boosting additional capacity for safety related high tech components which is very critical given the high number of road accidents in the country”

Mr. Shamsher Dewan, Vice President & Group Head - Corporate Ratings, ICRA Limited was of the opinion of - The recent announcement by the Government to allocate Rs. 26,000 crore as PLI for the auto sector is another step towards promoting EVs and alternate fuels. The PLI scheme will encourage local investments and aid in reducing dependence on imports. Over the past few years, import content in vehicles has increased owing to changing emission and safety standards. This coupled with increasing sales of EVs makes for a valid case for supporting local investments. Even as the overall quantum seems to have been reduced, ICRA awaits fine print to understand the eligibility criteria. 

Saurabh Agarwal, Tax Partner, Automotive sector, EY India said, “The PLI scheme for the auto sector is clearly indicative of the Government’s shift in focus towards advanced technologies and greener environment.  The same is likely to give a boost to the Electric Vehicles and Hydrogen Fuel Cell Vehicles.  Further, the inclusion of components for Advanced Technologies, EVs and HFCVs as a part of the policy are likely to boost the investment in the component industry. The scheme is likely to make India a prominent face in promoting a sustainable green environment. 

While the scheme is incentivizing the manufacturing in the vehicle and component space, the industry awaits similar policy measures to promote the manufacturing of goods required for setting up the infrastructure required for charging such vehicles.

The beneficiaries in the PLI scheme for auto sector are likely to be 10 vehicle manufacturers, 50 auto-component manufactures and 5 new non-automotive investors planning to enter into the automotive sector. With a limited budget of INR 26,000 Crore approx. likely the industry will see a tough competition with respect to award of the PLI scheme.”

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