News Analysis | How the Auto PLI scheme will nudge the industry towards green vehicles

#Green Vehicles, #PL/I

Representative Image (Source: ShutterStock)

The production linked incentive scheme (PLI) announced by the government on Wednesday allocates Rs 26,000 crore and incentivises the production of electric vehicles (EVs), Hydrogen Fuel cell vehicles (FCEVs) and other advanced automotive technology products in the country.

The package has been hailed by industry leaders as well as analysts since it prioritises production of environment-friendly vehicles and offers sops to develop deep supply and production lines for vehicles of the future. But the scheme has bypassed ICE (internal combustion engine) vehicle makers completely. In addition, the budgetary outlay for EVs is just about half the amount promised earlier.

Idle capacity

India’s automotive industry is primarily populated by large manufacturers of ICE vehicles, who have been struggling with idle capacity as domestic demand as well as exports have failed to keep pace with earlier projections. Many global brands are using less than half their installed capacity as demand remains weak. A senior industry official, speaking on condition of anonymity, said that the automobile industry had prepared a detailed plan for incentivising production and export of ICE vehicles last summer.

“Niti Ayog had engaged a consultant who had asked us to prepare a comprehensive document with suggestions on how to incentivise exports. This was prepared and submitted around June 2020. So, I am a little surprised that the PLI package announced on Wednesday is solely directed at new technology vehicles,” the official said.

Maruti Suzuki Chairman RC Bhargava told Moneycontrol that the purpose of the PLI scheme is to “incentivise production of new technology items. ICE is not new, it is a centuries-old technology, so obviously it was not covered in the PLI scheme.” Maruti, the largest carmaker in the country, has not yet announced a timeline for manufacturing EVs.

On being asked if the PLI scheme announced yesterday will hasten Maruti’s entry into new technology vehicles, Bhargava said: “We will introduce EVs, we are working on them. But we have to get timing right so that they sell in reasonable numbers. The just-announced PLI scheme will bring down the cost of production of EVs.”

Big investments anticipated

While announcing the PLI scheme, the government has said it expects the package to drive in new investments of Rs 42,500 crore and also generate incremental production of Rs 2.3 lakh crore, besides creating additional employment opportunities for 7.5 lakh people.

Also Read: PLI scheme for automobile sector | How will it benefit the domestic industry?

The scheme primarily promotes cleaner technologies. Along with the already launched PLI for Advanced Chemistry Cell battery storage and Faster Adoption and Manufacturing of Electric Vehicles (FAME) schemes, it should boost manufacturing of EVs in the country.

Eligibility and components

The PLI Scheme is open to existing automotive companies as well as new investors who are currently not in the automobile or auto component manufacturing business. The scheme has two components:

a) Champion OEM Incentive Scheme: This is a ‘sales value linked’ scheme, applicable on battery EVs and Hydrogen Fuel Cell vehicles of all segments.

b) Component Champion Incentive Scheme: This is a ‘sales value linked’ scheme, applicable on advanced automotive technology components of vehicles, completely-knocked-down (CKD) and semi-knocked-down kits, vehicle aggregates of two-wheelers, three-wheelers, passenger vehicles, commercial vehicles and tractors.

Heavy Industries Secretary Arun Goel has spoken of the scheme also incentivising components, for which supply chains do not currently exist, and has said the government is willing to discuss incentives for all alternative fuel options.

Nishant Vass and Pratit Vajani of ICICI Securities said that among the existing OEMs, Tata Motors, M&M, TVS Motors and Ashok Leyland would likely be able to avail benefit from the PLI scheme.


Since M&M is a likely beneficiary under the PLI scheme, it was no surprise that Chairman Anand Mahindra tweeted: “Some may think that existing OEMs like us will be disappointed that this scheme focuses on renewable energy vehicles. Frankly, we believe this is a transformational policy change & signals to the world that India intends to be a force in the future of Automobiles”

Bajaj Auto MD Rajiv Bajaj, however, rued that “18 months of dialogue with industry to enhance exports & hence employment is now history”, referring perhaps to the earlier plan to offer export sops for ICE vehicles.

Sulajja Firodia Motwani, Chairperson of FICCI’s Electric Vehicle Committee, said that large investments are needed to build domestic supply chains for EVs. “Clear policy directives with clear milestones for transition to EV as envisaged under PLI will drive further investment in the EV sector,” she said. She added that worldwide, the automotive sector is going through disruptions and India is well poised now to take a leadership position in the global EV space.

Aarthi Sivanandh, Partner at J Sagar Associates, said that the automotive sector constitutes nearly 50 percent of manufacturing activity in India and the government has taken several steps to incentivise growth in the sector, such as stamp duty concessions by State governments on land allotment, electricity subsidies, IP registration reimbursements, an environmental protection subsidy, as well as demand-supply side incentives for the EV sector.

“However, it has still not been enough for this sector to get on par with global players. The PLI is a needed incentive to aid the high cost of logistics. We will have to await further clarity if brownfield investments are also eligible, how net worth, revenue and investments will be reckoned, and the actual implementation by applying eligibility criteria. (The PLI scheme) also helps us meet obligations under the Paris climate accord, with the focus on clean energy,” she said.

Also Read: Cabinet clears Rs 26,058-crore PLI scheme for auto and drones sector

Shamsher Dewan, Vice President & Group Head – Corporate Ratings at ICRA, said that in the last few years, import content in vehicles manufactured in India has increased due to stricter emission and safety standards. “The PLI scheme will encourage local investments and aid in reducing dependence on imports.”

In the end, the PLI scheme may be all about prodding OEMs currently manufacturing ICE vehicles to expand into technologies that are now being imported, so that import substitution gets a leg up. Will Indian OEMs get into the highly capital intensive, complex manufacturing of semiconductors for example? That remains to be seen.

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