Auto PLI scheme for electric vehicles, hydrogen fuel cell vehicles cleared by Union Cabinet

The production-linked incentive (PLI) scheme for the automobile, auto component, and drone manufacturing has been cleared by the Union Cabinet, Union Minister Anurag Thakur said on Wednesday, confirming CNBC-TV18 newsbreak.

The total outlay of the scheme is Rs 25,938 crore, the minister said, adding that Rs 120 crore will be allocated for the drone PLI scheme.

Thakur asserted the auto sector will generate employment for over seven lakh people through this scheme. In line with what sources told CNBC-TV18 earlier, the minister said, India's share in the global auto sector is 2 percent and there is a need to increase it, therefore, the scheme is aimed to push advanced automotive technologies. He also pitched for the need to reduce component imports of 17 billion. “PM wants India to have a leading position in new technologies,” he said.

The initial outlay approved for the PLI scheme for vehicles and components makers was Rs 57,000 crore but it has been reduced because the scheme will now only incentivize makers of electric and hydrogen fuel cell vehicles whereas petrol, diesel, and CNG vehicle makers will not be covered under the scheme.

A total of 22 components have been covered under the auto components PLI scheme, including flex fuel kit, hydrogen fuel cell, hybrid energy storage systems and electric vehicles parts, including charging ports, drive train, electric vacuum pump, and electric compressors. Sunroof and electronic stability control have also been added to component PLI scheme.

Petrol and diesel engine components including, exhaust, after treatment and FIE systems, and ECUs, automatic transmission assembly, and electronic power steering system are also part of the scheme.

Thakur added the drone industry will receive exceptional treatment and the drone manufacturing PLI will ensure a 20 percent incentive over 5 years. Investment worth Rs 5000 crore is expected in the Indian drone industry.

Sources had earlier said, the scheme has been modified with a focus on advanced automotive technologies after feedback from the Prime Minister’s Office. The government believes that India’s share in global automotive exports is less than 2 percent and therefore there is a need to promote advanced technologies like hydrogen and electric vehicles.

The PLI scheme for the auto sector will be effective from FY23 for five years and the base year for eligibility criteria would be 2019-20. A total of 10 vehicle manufacturers, 50 auto component makers and five new non-automotive investors will benefit from the scheme.

For automobile original equipment manufacturers (OEMs) to avail the scheme, they must have a minimum of Rs 10,000 crore in revenue and Rs 3,000 crore investment in fixed assets. Auto-component makers must have a minimum revenue of Rs 500 crore and Rs 150 crore fixed assets investment to be eligible for the PLI. Meanwhile, the third category, i.e new non-automotive investors must have a global net worth of Rs 1,000 crore and a clear business plan for investment in advanced automotive technologies to be eligible.

Reacting to the announcement, Rajiv Bajaj, MD of Bajaj Auto,  said he is not in favour of any such incentives or subsidies because the future can not be built on subsidies, it has to be built on competitiveness and sustainability

Bajaj said the intention of the PLI scheme to boost exports has changed completely. “The PLI scheme that was being discussed with SIAM and with industry was called PLI – production linked incentive and it was supposed to help companies grow their exports and in the process grow employment in India and make India a centre of excellence for two-wheelers or small cars etc. But clearly after a long discussion of over 18 months or so, suddenly there has been a course correction there."

Bajaj said he finds it peculiar that to bring in new technology, crutches to the tune of 5 percent incentive are needed and that he doesn’t think advanced automotive technologies need subsidy support. "Technology should be built on the back of sound strategy – brand strategy, product strategy etc. Every time a new technology comes in it takes you higher in terms of growth prospects, bottomline, etc." he said.

Commenting on the outlay of the scheme, Bajaj said last year, the government had denied automakers Merchandise Exports from India Scheme (MEIS) dues and the dues still haven't been cleared so it is hard to imagine how the government has Rs 26,000 crore for the auto PLI scheme.