The Production Linked Incentive (PLI) Scheme is a landmark initiative by the Government of India to promote domestic manufacturing across key sectors, enhance exports, and reduce import dependency. This scheme plays a pivotal role in strengthening India’s industrial capabilities and fostering economic growth. One of the most impactful implementations of the PLI scheme is in the Automobile and Auto Component Industry, where it aims to develop India’s manufacturing ecosystem for Advanced Automotive Products (AAT).
Objectives of the PLI Scheme
The primary objectives of the PLI scheme include:
- Boosting domestic manufacturing and reducing reliance on imports.
- Attracting large-scale investments in targeted industries.
- Enhancing India’s global competitiveness in key sectors.
- Promoting the production of environmentally sustainable products like electric vehicles (EVs) and hydrogen fuel vehicles.
- Creating employment opportunities and driving economic growth.
Key Features of the PLI Scheme for the Automobile Sector
1. Financial Incentives
The PLI scheme provides financial incentives to manufacturers of Advanced Automotive Technology (AAT) products, encouraging large-scale production and investment in the automobile and auto component sector.
2. Budgetary Allocation
The Government of India has allocated a budget of ₹25,938 crore under this scheme to provide financial incentives to eligible manufacturers.
3. Targeted Segments
The PLI scheme for the automobile sector is divided into two main segments:
- Champion OEM Incentive Scheme – Applicable to Battery Electric Vehicles (BEVs) and Hydrogen Fuel Cell Vehicles.
- Component Champion Incentive Scheme – Targets manufacturers producing high-value automotive components.
4. Focus on Advanced Technology
The scheme promotes the manufacturing of Advanced Automotive Technology (AAT) products, facilitating deep localization and supporting the development of a robust supply chain.
5. Incentive Period
The incentives under the scheme will be applicable from Financial Year 2023-24 to FY 2027-28, based on the Determined Sales Value of eligible products.
Expected Outcomes of the PLI Scheme
1. Increased Investments
The PLI scheme has already attracted an investment proposal of ₹74,850 crore, significantly exceeding the initial target of ₹42,500 crore.
2. Job Creation
The scheme is expected to generate over 7.5 lakh employment opportunities in the automobile sector.
3. Growth in Exports
By promoting cost-efficient manufacturing of EVs and other high-tech automotive products, the PLI scheme aims to transform India into a global export hub.
4. Transition to Clean Energy
The scheme encourages the production of electric vehicles (EVs) and hydrogen fuel vehicles, supporting India’s commitment to reducing carbon emissions and shifting to sustainable transportation solutions.
Challenges in Implementing the PLI Scheme
Despite its success, the PLI scheme faces certain challenges:
1. Stringent Eligibility Criteria
Many companies struggle to meet the eligibility provisions, limiting their participation in the scheme.
2. Supply Chain Disruptions
Global issues such as chip shortages and raw material price fluctuations pose challenges for manufacturers in meeting production targets.
3. Funding and Implementation Delays
Administrative hurdles, funding constraints, and delayed incentive disbursements affect the smooth execution of the scheme.
4. High Cost of Raw Materials
Rising costs of raw materials, such as steel and rare earth elements, impact the profitability of companies manufacturing advanced automotive products.
Comparison with Global Automotive Incentive Programs
1. Scope and Focus
- India’s PLI Scheme: Primarily targets Advanced Automotive Technology (AAT) products, including electric vehicles (EVs) and hydrogen fuel cell vehicles. It aims to enhance manufacturing capabilities, overcome cost disabilities, and create a robust supply chain within India.
- Global Examples: Countries like Germany and the United States also focus on EVs but often provide broader incentives that encompass research and development (R&D), infrastructure development, and consumer subsidies. For instance, the U.S. offers tax credits for consumers purchasing electric vehicles, while Germany has substantial subsidies for EV buyers and investments in charging infrastructure.
2. Incentive Structure
- India’s PLI Scheme: Offers cash incentives linked to sales value over a five-year period, with a total budgetary outlay of ₹25,938 crore (approximately $3.5 billion). The scheme is divided into two components: Champion OEM Incentive Scheme and Component Champion Incentive Scheme.
- Global Practices: Other countries often employ a mix of direct financial incentives, tax breaks, and grants. For example, the European Union has introduced various funding mechanisms to support green technologies in the automotive sector, which can include significant grants for R&D initiatives.
3. Eligibility Criteria
- India’s PLI Scheme: Requires companies to meet specific revenue thresholds and investment commitments to qualify for incentives. For example, companies must demonstrate a revenue of ₹10,000 crore overall or ₹1,000 crore from overseas operations.
- International Standards: Eligibility criteria vary widely; some countries have more lenient requirements to encourage participation from startups and smaller companies. In contrast, others may impose stringent conditions similar to India’s.
4. Investment Goals
- India’s PLI Scheme: Aims for an additional investment of over ₹42,500 crore over five years with expectations of creating around 7.5 lakh jobs. The scheme has already attracted proposed investments exceeding this target.
- Global Context: Countries like China have aggressively pursued foreign direct investment (FDI) in EV manufacturing with substantial state support, aiming for rapid market penetration and job creation on a larger scale.
5. Implementation Challenges
- India’s PLI Scheme: Faces challenges such as global supply chain disruptions and stringent eligibility criteria that have delayed participation from several companies.
- Comparative Issues Globally: Many countries also face implementation challenges related to supply chain issues or bureaucratic delays. However, some nations have more established frameworks for rapid deployment of incentives.
How PLI supports the transition to electric vehicles (EVs) in India
- Financial Incentives: The PLI scheme provides financial incentives to companies to boost domestic manufacturing of advanced automotive technology products, including EVs and hydrogen fuel cell vehicles. The government has allocated a budgetary outlay of ₹25,938 crores for this purpose.
- Focus on EV Components: The scheme includes incentives for manufacturing specific EV components, such as hydrogen fuel components, flex fuel kits, high voltage connectors, charging inlets/outlets, electric motor components, and electric compressors.
- Promotion of High-Tech Green Manufacturing: The PLI scheme promotes higher-tech green manufacturing, aligning with India’s clean energy goals and enabling the transition from fossil fuel-dependent transportation systems to EVs.
- Incentivizing Cost-Efficient Manufacturing: The scheme aims to incentivize cost-efficient manufacturing of high-value advanced automotive technology vehicles and products. This can potentially transform India into an export hub in the global auto supply chain.
- Synergy with Other Schemes: The PLI scheme is designed to work in conjunction with other schemes such as the PLI scheme for Advanced Chemistry Cell (ACC) manufacturing and the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme. The ACC scheme supports establishing competitive battery manufacturing in India, while the FAME scheme provides upfront incentives to reduce the purchase price of EVs. Conventional carmakers have been excluded from the PLI entirely, adding to a growing list of disincentives to invest in conventional power trains.
Conclusion
The Production Linked Incentive (PLI) Scheme is a game-changer for India’s automobile and auto component industry, driving large-scale investments, job creation, and clean energy adoption. While there are challenges to overcome, the scheme holds immense potential to position India as a global manufacturing hub in the automotive sector.
As India refines its policies and learns from global best practices, the PLI scheme will continue to play a vital role in making India a self-reliant and globally competitive manufacturing powerhouse.