PLI scheme to benefit domestic auto, parts industries in multiple ways: Report

The recently announced production-linked incentive (PLI) scheme with an outlay of Rs 25,938 crore will benefit domestic auto and auto components sectors in multiple ways, credit ratings agency Icra said in a report released on Tuesday.

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.

Besides, it 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, Icra said in the report.

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The government had on September 19 approved the PLI scheme for the auto industry with an outlay of Rs 26,400 crore that has been slashed from the initial outlay of Rs 57,000 crore.

The scheme will be effective from FY2023 for five years, and the base year for eligibility criteria would be FY2020.

The PLI incentives are sales-linked and are expected to be in the range of 13-18 per cent on determined sales values for OEMs and 8-13 per cent on determined sales values for auto component manufacturers, according to Icra.

An additional five per cent is to be given for manufacturing components for battery electric vehicles and hydrogen fuel cell vehicles, as per the scheme, Icra said.

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

Icra Assistant Vice-President and Sector Head Vinutaa S 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."

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Vinutaa added that it aims to promote an indigenous global supply chain of advanced automotive technology products which is low compared to that globally.

As tier-I scales up, the tier-II will also benefit, resulting in a multiplier effect and cost competitiveness, she said adding that "the scheme is also likely to attract foreign investments into India, capitalising on global economies de-risking their supply chains".

The production and export of advanced automotive components will also help compensate for the potential loss of revenues from traditional components to an extent as overseas markets move into electric vehicles (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 leap-frog from fossil-fuel based automobiles to green transportation, Icra stated.

Besides, the scheme will also lead to the promotion of next-generation safety technologies to make Indian automobiles and roads safer, it said.

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, as per Icra.

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 (internal combustion engine) vehicle manufacturing is largely excluded for incentives and some EV start-ups may be at a disadvantage if they do not scale up going forward," Vinutaa said.

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