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India’s Automobile PLI Scheme
Context:
Recent data from the Ministry of Heavy Industries (MHI) reveals that only 12 out of 82 approved applicants have met the 50% domestic value addition (DVA) target, indicating that the majority have not qualified for the incentives.
Background:
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- Launched in 2021, the Production Linked Incentive (PLI) Scheme for the Automobile and Auto Components Industry is a visionary initiative by the Indian government aimed at transforming India into a global manufacturing hub for advanced automotive technologies.
- With a budgetary outlay of ₹25,938 crore over five years (FY2022-23 to FY2026-27), the scheme focuses on promoting Zero Emission Vehicles (ZEVs), including battery electric vehicles and hydrogen fuel cell vehicles.
- Components:
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- Champion OEM Incentive Scheme: Focuses on Battery Electric Vehicles (BEVs) and Hydrogen Fuel Cell Vehicles of all segments. It is a sales value-linked incentive scheme.
- Component Champion Incentive Scheme: Targets AAT components for vehicles (e.g., CKD/SKD kits, aggregates for 2-wheelers, 3-wheelers, passenger vehicles, etc.).
- The scheme is part of a larger set of government initiatives aimed at promoting Electric Vehicle (EV) manufacturing, such as the PLI for Advanced Chemistry Cells (ACC) and the Faster Adoption of Manufacturing of Hybrid and Electric Vehicles (FAME) schemes.
Key Objectives:
- Boosting Advanced Automotive Technology (AAT) Products: The scheme targets the production of Zero Emission Vehicles (ZEVs), including battery electric vehicles, hydrogen fuel cell vehicles, and other advanced automotive technologies.
- Increasing Domestic Value Addition: Companies are incentivised to achieve high levels of domestic value addition, thereby reducing dependency on imports and promoting local manufacturing capabilities.
- Supporting Green Mobility: By focusing on environmentally friendly technologies, the scheme aligns with India’s broader sustainability goals and commitments to reduce carbon emissions.
Challenges Facing the Auto Sector:
- Inadequate Supply Chain Infrastructure: The lack of advanced components and infrastructure domestically poses a significant challenge.
- Steep Learning Curve: New entrants to the market face difficulties in adapting to high-value manufacturing standards.
- Investment Hesitancy: Some firms, particularly smaller players and new entrants, have not made any investments in the first two years of the scheme, possibly due to high initial investment requirements or uncertainty about the domestic market’s ability to absorb advanced products.
Proposed Revisions to the Scheme:
- Easing DVA Criteria: To increase participation, the government could consider easing the DVA criteria, allowing for a graded increase over time. This would help new and smaller players gradually reach their targets.
- Focus on Scaling Production: Similar to the smartphone scheme, the focus of the auto PLI could shift towards scaling up production and exports before tightening DVA requirements.
- Support for Smaller Players and New Entrants: The government should provide more support, including financial assistance or infrastructure development, to encourage smaller players and new entrants to invest in the auto sector.
Reevaluation of Structural and Operational Hurdles: The government needs to assess structural issues, such as supply chain challenges and the availability of advanced components, that may be hindering the progress of the PLI scheme.
