PLI scheme in auto will increase localisation, accelerate investments towards local EV ecosystem: ICRA

The recently announced Production-Linked Incentive (PLI) scheme with an outlay of Rs 25,938 crore will benefit India’s auto and auto components sectors in multiple ways, ICRA has mentioned.  

The PLI incentives are sales-linked and are expected to range from 13-18 per cent on determined sales values for OEMs and 8-13 per cent of determined sales values for auto component manufacturers.  

An additional 5 per cent is to be given for manufacturing components for battery electric vehicle and hydrogen fuel cell vehicles. It will be effective from FY2023 for five years. The scheme has the potential to make India an export hub in the global auto supply chain and increase cost competitiveness, ICRA said.  

The Ministry of Heavy Industries, Government of India, estimates that the scheme has potential to bring fresh investments of over Rs 42,500 crore and result in incremental production of over Rs 2.3 lakh crore.  

As per an ICRA note, the scheme aims for a future-ready and globally competitive Indian auto sector, by fast-tracking investments in technology and components where India needs to leapfrog.  

Giving more insight on the positive impact of the scheme, Vinutaa S, Assistant Vice President and Sector Head, ICRA said, “The PLI scheme will increase localisation, accelerate investments towards a local EV ecosystem and has the potential to make India an export hub in the global auto supply chain. It aims to promote indigenous global supply chain of advanced automotive technology products which is low compared to that globally.”  

“As tier-Is scale up, the tier-IIs will also benefit, resulting in multiplier effect and cost competitiveness. The scheme is also likely to attract foreign investments into India, capitalizing on global economies de-risking their supply chains. The production and export of advanced automotive components will also help compensate potential loss of revenues from traditional components to an extent as overseas markets move into EVs in the future,” she added.  

The automotive sector has been one of the key beneficiaries of the PLI scheme. Along with the FAME-II, the State EV policies (on the demand side) and earlier announced PLI for ACC batteries (on the supply side), the current PLI scheme will enable India to leapfrog from fossil-fuel based automobile to green transportation, ICRA said.

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It will also lead to promotion of next generation safety technologies to make Indian automobile and roads safer. The eligibility for existing domestic and global auto and auto component players to apply for incentives under the PLI scheme is contingent on committed fresh investments, group turnover and group fixed assets.  

New non-automotive investors with a global net worth of Rs 1,000 crore and a clear business plan for investment in advanced automotive technologies are also eligible.  

 “The PLI will accelerate India’s transition into new technologies. Incumbent OEMs will benefit from the scheme. Most mid-size auto component suppliers supplying or targeting to supply advanced technology components will gain from the scheme. However, ICE vehicle manufacturing is largely excluded for incentives and some EV startups may be at a disadvantage if they do not scale up going forward,” added Vinutaa,