PLI Scheme For Auto Sector: Automakers Welcome The Move, But Experts Say It's Not Enough

After a long wait, the Government of India has finally approved a Production Linked Incentive (PLI) scheme of nearly Rs. 26,000 crore for the auto sector. The Union Cabinet has cleared a total incentive scheme of Rs. 26,058 crore to boost manufacturing of electric and fuel cell vehicles and drones in India for a period of five years. Out of this Rs. 25,938 crore has been set for the automobile sector and Rs 120 crore for the drones sector. With this announcement, several Original Equipment Manufacturers (OEMs) have released statements welcoming the move by the cabinet.

Also Read: Cabinet Approves Rs. 26,000 Crore Incentive Scheme To Boost Clean Fuel Vehicles

Shailesh Chandra, President, Passenger Vehicle Business Unit, Tata Motors, said, "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 the 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 fulfil the aspiration of India, by becoming a global manufacturing hub of green mobility."

Also Read: Electric Two-Wheeler Makers Welcome PLI Scheme For Auto Sector

Shailesh Chandra, President, PV Business Unit, Tata Motors, says the scheme will help in accelerating the transition to smart, environment-friendly, sustainable mobility solutions

At the same time, Dr Anish Shah, MD & CEO, Mahindra & Mahindra Limited said, "The Government's PLI scheme for auto will drive faster acceptance of sustainable mobility solutions. India promises to be one of the largest EV markets in the world. This scheme is a giant step in the right direction" Rajesh Jejurikar, Executive Director, Auto & Farm Sectors, Mahindra said, "The auto PLI scheme is a transformational move that has potential to create a multiplier effect for both clean mobility and also for the economy. It gives Indian firms powerful impetus to be globally competitive in EVs and technology."

Also Read: Maharashtra EV Policy 2021: State Incentives On Electric Vehicles Explained

On the other hand, Vikram Kirloskar, Vice Chairman, Toyota Kirloskar Motor said "We would like to appreciate the efforts made by the Government of India as the scheme is quite distinct when compared to other sectoral schemes and it addresses existing competitive gaps and aims to foster rapid tectonic technological shifts to leverage opportunities arising from the realignment of global supply chains. The PLI scheme also proves to be timely so as to be able to revive the sectoral growth and lay the foundation for the country to become a global auto manufacturing hub." He added, "We believe the scheme will be instrumental in providing the desired impetus for 'Make in India' thereby reducing imports, and enabling the Indian automotive industry to move up the value chain into higher value-added technologies. Above all, it will help attract global investments as several automotive players are looking to diversify their supply chains owing to the pandemic and emerging geopolitical scenarios."

Toyota says, the scheme will be instrumental in providing the desired impetus for 'Make in India' thereby reducing imports

Vinod Aggarwal, Treasurer, SIAM and MD & CEO, VECV, said "Production Link Incentive Scheme for Automotive will result in ushering in more advanced technologies for new vehicles in our country, Such technologies will be now be introduced, much faster than what we have been seeing in last several years. Focus on next-generation sensor-based safety and collision avoidance systems would go a long way in making the vehicles and our roads one of the safest in the world. PLI will also provide an opportunity for the Auto Industry to increase its Electric portfolios, as it will supplement the existing incentives of FAME and lower GST, for these vehicles."

Satyakam Arya, Managing Director & CEO, Daimler India Commercial Vehicles (DICV), said, "Daimler India Commercial Vehicles welcomes the opportunities offered by the newly announced PLI scheme. This initiative will encourage investment in vital technologies related to sustainability, carbon neutrality and more."

Dailmer India MD and CEO Satyakam Arya said initiative will encourage investment in vital technologies related to sustainability, carbon neutrality and more

Whereas, Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles said, "We thank the government for approving the PLI scheme for the Automotive industry. The scheme is especially beneficial for existing large players engaged in the automotive business and new entrants as it will renew the interest of traditional players and motivate them to invest in the sector. The move will strengthen the manufacturing ecosystem and build a self-sustaining framework for the e-mobility industry. However most of the existing small & medium OEMs engaged in the the EV automotive business and new Startups may not be able to qualify for the scheme and will have to operate under the existing norms. Policies supported by fiscal and non-fiscal incentives are the pillars that drive consumer sentiment and accelerate the adoption of new products in the market. The ACC and amendments to FAME II scheme in June have generated a positive consumer response; the same is envisioned on the rolling out of the PLI scheme. We look forward to continuing working with industry players and policymakers to build India as a global EV manufacturing hub."

Manish Narang, Co-Founder, EV Plugs, an aggregator app for EV charging stations said,"This has come as a welcome move by the government as it shows their strong intent towards the transition from fossil fuel-powered vehicles to EVs. This will give a big boost to the EV sales as building the battery infrastructure in India reduces the cost of the vehicles which in turn will lead to a faster adoption by consumers as it reduces the price gap between combustion engine vehicles and EVs which has been one of the hindrances in EV adoption."

However, some of the auto industry experts we spoke to were more critical about the PLI scheme and highlighted two key points - one, this new PLI scheme is for the long run and won't have any short term effects, and secondly, the money will not be enough to boost the electric mobility agenda of the government. Now, the original plan was to spend around Rs. 57,000 crore to incentivise auto and auto part makers to build mainly petrol vehicles and their components for domestic sale and export, with some added benefit for EVs. Ravi Bhatia President and Director JATO India said, "The PLI scheme will help the component sector, however, it's not sufficient for meaningful change in the adaption of electric vehicles. We need to look at other markets' case studies and direct our limited resources."

Industry experts believe, the funds allocated for the scheme is not sufficient for meaningful change in the adaption of electric vehicles

Sridhar V, Partner, Grant Thornton Bharat LLP. said, "The PLI scheme cleared by the cabinet is more future-focused and encouraging the industry to move directionally. While there is not much for traditional ICE based vehicle manufacturers, the incentive covers existing or new manufacturers of EV and Hydrogen fuel cell vehicles, laying the path for the future. This along with other incentives should encourage more investments into EV and the underlying charging infra. The scheme also has a component champion element, which encourages manufacturing and exporting advanced technology components as listed in the scheme, which could cover components in the ICE based segment also and give a reason for cheer to that segment as well."

At the same time, Rajeev Singh, Partner and Automotive Leader, Deloitte India was supportive of the scheme, and said, "Auto is one of the most important sectors contributing to 7.1 per cent of our GDP and employs about 37 million 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 the production of new-age vehicles which are cleaner 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"

The Rs. 26,000 crore PLI scheme has two components - Champion OEM Incentive Scheme and Component Champion Incentive Scheme

On the other hand, Avik Chattopadhyay, auto industry expert and Co-founder of brand strategy consultancy Expereal had a more critical outlook. He said, "The PLI's definition has been narrow-casted to 'green' vehicles and technologies. This is the one major change to accommodate the fact that the government does not have too much money to give out anyway... This will definitely benefit the SMEV members while the SIAM ones will be left sulking." Talking about the incentive amount for the auto sector, Avik added, "The amount is just too little...just a little more than USD 3.00 billion which is typically what automakers allocate to their EV programmes for a year."

The Rs. 26,000 crore PLI scheme has two components - 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. On the other hand, the Component Champion Incentive scheme is 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.