Cabinet clears Rs 26,000-cr PLI scheme for auto sector to boost production

The auto components incentive scheme is also a ‘sales value linked’ scheme, applicable to advanced automotive technology components of vehicles, vehicle aggregates of two-wheelers, three-wheelers, passenger vehicles, commercial vehicles and tractors, among others
The Union Cabinet on Wednesday approved a production-linked incentive (PLI) scheme with a budgetary outlay of Rs 25,938 crore to boost domestic manufacturing capabilities of the automobile industry, including electric and hydrogen fuel cell vehicles.

The 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, among others.

Last year, the government had said it planned to allocate more than Rs 57,000 crore to the automobile and auto components industry for a period of five years. However, the allocation has been slashed by more than 50 per cent, amid the government’s focus on green automotive manufacturing.

“The incentive structure will encourage industry to make fresh investments for indigenous global supply chains of advanced automotive technology products,” an official statement said.

The statement further said the existing Rs 18,100-crore scheme for advanced chemistry cell as well as the Rs 10,000-crore 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.

The announcement is part of the PLI schemes for 12 other sectors approved by the government over the past one-and-a-half years to improve cost competitiveness of locally produced goods, create employment opportunities, and curb cheap imports.

According to government estimates, over a period of five years, the PLI scheme for the auto sector will lead to fresh investments of over Rs 42,500 crore and incremental production of over Rs 2.3 trillion. Besides, it will create additional employment opportunities for over 750,000 people and accelerate India’s share in global automotive trade.

  • PLI scheme for auto sector will bring fresh investments of over ₹Rs 42,500 crore in 5 years and incremental production of over Rs 2.3 trillion
  • Will help create additional employment for over 760,000 people
  • Aims to help India leapfrog to environmentally cleaner electric vehicles and hydrogen fuel cell vehicles
Source: Govt estimates
Currently, the Indian automobile sector has a low penetration of advanced automotive technology products. As a result, there is a need to expeditiously create its supply chain to reduce dependence on imports, government officials said. The share of advanced automotive technology in the Indian automobile sector is at 3 per cent right now, as against 18 per cent globally.

The scheme for the auto sector is open to existing automotive companies as well as new investors who are currently not in the automobile or auto component manufacturing business. It has two components – the champion 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.

Venu Srinivasan, chairman, TVS Motor Co, said the revised focus of the PLI scheme on alternative fuels, electric vehicles, and utilisation of advanced technological innovation would help the industry move faster towards 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,” said Srinivasan. 

ALSO READ: PLI scheme will accelerate commitment to new technologies: Automakers

R C Bharagava, chairman of Maruti Suzuki India, said the scheme would help start-ups that plan to introduce new technologies. Typically, they struggle for the first two-three years to break even. According to Bhargava, it’s only fair that the scheme is applicable only to start-ups and those making fresh investments in new technologies. “Other manufacturers have large enough volumes, why do they need a PLI scheme?” he added.

The auto components incentive scheme is also a ‘sales value linked’ scheme, applicable to advanced automotive technology components of vehicles, vehicle aggregates of two-wheelers, three-wheelers, passenger vehicles, commercial vehicles and tractors, among others.

The scheme, said Girish Wagh, executive director, Tata Motors, will encourage production of auto components using advanced technologies and will boost localisation, domestic manufacturing and also attract foreign investments.

“This will help component manufacturers strive for scale, which will require the setting up of new facilities and creating more jobs. With auto being a strategically important sector of the economy, the benefits accrued overall will result in a multiplier effect," said Wagh.

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