Production Linked Incentive (PLI) Scheme for the Automotive Sector in India

Auto sector contributes 6.40% to the GDP of India and provides employment to 19 million people directly or indirectly hence is a very important sector. By 2026 it is expected to be third largest in terms of volume, at present it is the largest tractor manufacturer second largest bus manufacturer and third largest heavy trucks manufacturer in the world.

In order to accelerate manufacturing and enhance its Global reach the Indian government has allocated huge amount of US$ 7.67 billion to the automobiles in auto components. As the Government of India intends to make the country environment-friendly and slowly phase out petrol diesel-based vehicles the PLI scheme for auto sector is interlinked with the scheme for Advanced Chemistry Cell (ACC) battery storage. It will help in reducing the cost of manufacturing electric vehicles which will in turn makes them affordable for a large section of the population. India’s EV market is estimated to be at US$ 7.09 billion by 2025.

Government is in the stage of analysing the scheme however as per the information available in public domain there is likely to be an eligibility criterion for companies for the availing the incentives. There would be four plans and any company would be eligible to apply for a maximum of three schemes from these.

Sourcing incentive scheme This scheme intends to incentivize international purchase offices for component Sourcing. Global and Indian OEMs should set up a subsidiary in India exclusively for sourcing. Estimated allocation under this scheme is US$ 968.7 million.

Champion OEM incentive scheme: Estimated allocation for this scheme is US$ 2.42 billion and incentives would be based on sales of Original Equipment Manufacturer.

Logistics cost incentive scheme: This scheme would provide sales-based incentive to offset logistics costs and outlay anticipated under this scheme is US$ 3.17 billion.

Component champion incentive scheme: This scheme would provide incentive to auto component manufacturers based on their incremental sales. This scheme is estimated to have an out lay of US$ 1.09 billion.

In this scheme maximum incentive is expected to be limited to US$ 1.15 billion and rate of incentive may range from 2 to 12% of incremental sales.

Under the Automotive Champions scheme a company would qualify if it meets the following three criteria: –
i) Revenue of US$ 134.4 million (US$ 13.44 million for component makers) from Overseas operations
ii) US$ 1.34 billion overall revenue (US$ 67.2 million for component makers)
iii) Investment in Fixed Assets US$ 403.1 million (US$ 20.2 million for component makers)

Under the scheme it is anticipated that for availing the lowest cashback of 2% a company must have a minimum incremental sale of US$ 10.05 million and for availing 12%, incremental sales should be more than US$ 134.4 million.

The Indian government is expecting additional sales in the automotive sector and Micro Small and Medium Enterprises sector. It is also envisaging additional investments with increase in employment and incremental GST and Direct tax collections.

Compiled by Sandeep Bhatnagar

Member – Advisory Board
KCC Group

Contributing Advisors