PLI to boost auto industry’s electric vehicle drive

PLI to boost auto industry’s electric vehicle drive

By Parul Nagpal and Shailja Sood

The Indian government is aiming to boost electric vehicle manufacturing and adoption in India through its PLI scheme. The program focuses to incentivize the manufacturing of Battery Electric Vehicles (BEV) and Hydrogen Fuel Cell Vehicles (HFCV) in India, which is presently not a well-established sector.

India with its huge population is an attractive destination for the automobile industry and is expected to be the world’s third-largest automotive market in terms of volume by 2026. India has a diverse automotive industry comprising of vehicle manufactures (ranging from two-wheelers to four-wheelers and commercial vehicles), auto component manufacturers and international purchasing offices, etc

Automobile manufacturing contributes 50% to India’s manufacturing, however, auto components only contribute one per cent of exports in the global trade. Thus, with an objective to make the automobile sector competitive and develop component champions in India, the Centre has cleared the production linked incentive (PLI) scheme for the auto and auto component industries with the financial outlay of approx. Rs 26,000 crores (earmarked for 5 years). The focus of the scheme is to incentivize the manufacturing of Battery Electric Vehicles (BEV) and Hydrogen Fuel Cell Vehicles (HFCV) in India, which is presently not a well-established sector.

The approved proposal intends to provide incentives under two turnover-based schemes namely, Champion OEM Incentive Scheme for OEMs engaged in manufacturing of BEV and HFCV; and Component Champion Incentive Scheme for advanced automotive technology components used in vehicles, 2-wheelers, 3-wheelers, passenger vehicles, commercial vehicles, tractors etc.

The eligibility to apply for incentives under the scheme is contingent on committed fresh investments, global group revenue, global group investment and global net worth to seek benefits under the scheme; and is available for existing as well as non-automotive sector players.

The benefits under the scheme seem to be percentage-based incentives computed basis the incremental turnover over the base year (2019-20), and the indicative eligibility criteria and incentives are:

A. Champion OEM Incentive Scheme

Fresh InvestmentGlobal Group RevenueGlobal Group Investment (i.e. Gross Block)Incentive
Rs 2,000 crores (over a period of 5 years)Rs 10,000 croresRs 3,000 croresUp to Rs 2,000 crores (13%), more than Rs 2,000 and up to Rs 3,000 crores (14%), more than Rs 3,000 and up to Rs 4,000 crores (15%), more than Rs 4,000 crores (16%). Additional 2% incentive, if the cumulative incremental turnover over 5 years is Rs 10,000 crores or more.

B. Component Champion Incentive Scheme

Fresh InvestmentGlobal Group RevenueGlobal Group Investment (i.e. Gross Block)Incentive
Rs 250 crores (over a period of 5 years)Rs 500 croresRs 150 croresUp to Rs 250 crores (8%), more than Rs 250 and up to Rs 500 crores (9%), more than Rs 500 and up to Rs 750 crores (10%), more than Rs 750 crores (11%). Additional 2% incentive, if the cumulative incremental turnover over 5 years is Rs 1,250 crores or more plus additional incentive of 5% proposed for the component manufacturers of Battery Electric Vehicles (BEV) and Hydrogen Fuel Cell vehicles (HFCV).

The above schemes’ benefit can be availed alongside the benefit under Faster Adaption of Manufacturing of Electric Vehicles (FAME) scheme, PLI scheme for advanced chemistry Cell (ACC) and any other Central or State Governments incentive scheme; which is clearly indicative of the Government’s shift in focus towards advanced technologies and greener environment.

However, the scheme has failed to meet the expectation of petrol and diesel-based vehicles (primarily Internal Combustion Engines (ICE) vehicle manufacturers) which presently predominate the current Indian automotive industry. Hence, it could act as a setback to potential investors in this space.

Overall, it appears to be a good scheme with the intention to promote greener technology in India and could help in reducing the carbon footprint of India.

Also Read: Need for recycling of lithium-ion batteries in India

(Parul Nagpal is Director with Indirect Tax practice of Ernst & Young. Supported by Shailja Sood, EY)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Autofintechs.com. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)

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