“The PLI scheme will increase localization, accelerate investments towards a local EV ecosystem and has the potential to make India an export hub in the global auto supply chain. It aims to promote indigenous global supply chain of advanced automotive technology products which is low compared to that globally” said Ms. Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited.
The Ministry of Heavy Industries, Government of India, announced a Rs 25,938 crore production linked incentive for the auto and auto components sector on September 15, 2021.
The PLI incentives are sale-linked and are expected to range from 13-18% on determined sales values for OEMs and 8-13% of determined sales values for auto component manufacturers. An additional 5% is to be given for manufacturing components for battery electric vehicle and hydrogen fuel cell vehicles. It will be effective from FY2023 for five years. The scheme has the potential to make India an export hub in the global auto supply chain and increase cost competitiveness.
The Ministry of Heavy Industries, Government of India, estimates that the scheme has potential to bring fresh investments of over Rs. 42,500 crore and result in incremental production of over Rs 2.3 lakh crore. As per an ICRA note, the scheme aims for a future-ready and globally competitive Indian auto sector, by fast-tracking investments in technology and components where India needs to leapfrog.
As tier-Is scale up, the tier-IIs will also benefit, resulting in multiplier effect and cost competitiveness. The scheme is also likely to attract foreign investments into India, capitalizing on global economies de-risking their supply chains.
Giving more insight on the positive impact of the scheme Ms. Vinutaa said, the production and export of advanced automotive components will also help compensate potential loss of revenues from traditional components to an extent as overseas markets move into EVs in the future.
“The PLI will accelerate India’s transition into new technologies. Incumbent OEMs will benefit from the scheme. Most mid-size auto component suppliers supplying or targeting to supply advanced technology components will gain from the scheme. However, ICE vehicle manufacturing is largely excluded for incentives and some EV startups may be at a disadvantage if they do not scale up going forward” adds Ms. Vinutaa.