Performance Linked Incentive (PLI) Scheme for the Automotive Industry

Dr Debesh Roy, Chairman, InsPIRE

A PLI scheme for the automotive industry in India was announced by the Union Cabinet on 15September 2021.  With a budgetary outlay of INR 259.38 billion (USD 3.52 bn), the scheme aims to boost domestic manufacturing capabilities of the automobile industry, including electric and hydrogen fuel cell vehicles. The incentives to the automobile industry would be provided over a period of five years.

Last year, the government had announced a PLI scheme for the auto-component sector with an outlay of INR 570.43 billion (USD 7.74 billion). However, the allocation has been slashed by more than 50%, in view of the government’s priority to green automotive manufacturing. Nevertheless, both the schemes, together, promises to reinvigorate the automobile industry, to make it export competitive. The new PLI scheme is expected to be a game changer by incentivising both existing automakers and non-automotive investors  to mainstream the  manufacturing of green vehicles in the world’s fifth largest automotive market.

The new scheme aims to incentivise high-value advanced automotive technology vehicles and products such as sunroofs, adaptive front lighting, automatic braking, tyre pressure monitoring system, and collision warning systems, etc. The government has stated: “The incentive structure will encourage industry to make fresh investments for indigenous global supply chains of advanced automotive technology products.”

The government has further stated that, the existing INR181billion (USD 2.46 billion) scheme for advanced chemistry cell as well as the INR 100 billion (USD 1.35 billion). Faster Adoption of Manufacturing of Electric Vehicles (FAME) scheme would enable India to leapfrog from traditional fossil fuel-based transportation system to greener, sustainable, advanced and more efficient EV-based system. Presently, the share of advanced automotive technology in the Indian automobile sector is at 3%, as against 18% globally. The government has also clarified that components of internal combustion engine (ICE) vehicles that are not made in India will be incentivized, apart from incentivising the manufacture of electric vehicles (EVs) and hydrogen fuel cell vehicles.

The government has estimated that the PLI scheme for the auto sector will attract fresh investments of over INR 425 billion (USD 5.77 billion) and incremental production of over INR 2.3 trillion (USD 31.21 billion), over a period of five years. Further, additional employment opportunities for over 750,000 people are  estimated to be  created. The scheme is expected to accelerate India’s share in global automotive trade.

The new PLI scheme is open to existing automotive companies as well as new investors, who are from the non-automotive industry. The two components of the scheme are: the champion Original Equipment Manufacturers (OEM) incentive scheme and the component champion incentive scheme. The OEM incentive scheme is a ‘sales value-linked’ scheme, applicable to EVs and hydrogen fuel cell vehicles across all segments.

To avail the scheme, the OEMs must have a minimum of INR100 billion (USD 1.35 billion)  in revenue and will have to make new investments of INR 20 billion (USD 0.27 billion) in five years to take benefits from the scheme. For two-wheeler companies, the amount of new investment is INR10 billion (USD 0.14 billion). Auto-component makers must have a minimum revenue of INR 5 billion (USD 0.07 billion) and INR1.50 billion (USD 0.2 billion) fixed assets investment to be eligible for the PLI. Non-automotive investors must have a global net worth of INR 10 billion (USD 0.14 billion) and a clear business plan for investment in advanced automotive technologies to be eligible for the scheme.