PLI scheme will kick-start investments in advanced auto technologies and enable creation of EV ecosystem: ICRA

PLI scheme will kick-start investments in advanced auto technologies and enable creation of EV ecosystem: ICRA

The recently announced Rs. 25,938 crore Production-Linked Incentive (PLI) scheme will benefit India's auto and auto component sectors in a variety of ways. PLI incentives are estimated to range between 13-18 percent of OEMs' calculated sales values and 8-13 percent of determined auto component makers' determined sales values. An additional 5% will be allocated for component production for battery electric vehicles and hydrogen fuel cell vehicles. It will be in force for five years beginning in fiscal year 2023. The initiative has the potential to transform India into an export hub for the global automotive supply chain, while also improving India's cost competitiveness. According to the Government of India's Ministry of Heavy Industries, the scheme has the potential to attract new investments worth more than Rs. 42,500 crore and result in additional production worth more than Rs 2.3 lakh crore. According to an ICRA note, the initiative intends to develop an Indian auto sector that is future-ready and globally competitive by expediting investments in technology and components where India needs to leapfrog.

Ms. Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited, elaborates on the scheme's positive impact, saying, "The PLI scheme will increase localization, accelerate investments in a local EV ecosystem, and has the potential to transform India into an export hub in the global auto supply chain." Its objective is to develop an indigenous global supply chain for advanced automotive technology items that is less expensive than the global supply chain. As tier-Is expand, tier-IIs will profit as well, resulting in a multiplier effect and increased cost competitiveness. Additionally, the initiative is likely to entice foreign investment into India, leveraging global economies' efforts to de-risk their supply chains. Production and export of innovative automotive components would also assist compensate for some of the income loss associated with the eventual shift of international markets to EVs.”

The automotive industry has reaped significant benefits from the PLI system. Along with FAME-II, state-level EV laws, and the previously announced PLI for ACC batteries (on the supply side), the current PLI programme will enable India to make the transition from fossil-fuel-powered automobiles to green transportation. Additionally, it will result in the promotion of next-generation safety technology aimed at enhancing the safety of Indian automobiles and roadways.

Existing domestic and global car and auto component manufacturers are eligible to apply for incentives under the PLI scheme based on pledged new investments, group revenue, and group fixed assets. Non-automotive investors with a global net worth of Rs. 1,000 crore and a well-defined business plan for breakthrough automotive technologies are also eligible.

“The PLI will speed India's transition to new technologies,” Ms. Vinutaa continues. The strategy will assist incumbent OEMs. The initiative benefits the majority of mid-size auto component suppliers who sell or intend to supply sophisticated technology components. However, ICE car manufacturing is mostly excluded from incentive programmes, and some EV businesses may find themselves at a disadvantage in the future if they do not scale up.”