PLI scheme 2.0 can boost Indian automobile sector at full capacity
To boost Make in India movement in different sectors of the country, the Production Linked Incentive (PLI) scheme has acted as one of the solid foundations. The PLI scheme for Indian auto and its component industries has played a major role in their development. The PLI 1.0 scheme recorded a good response. Despite this, it also faced some challenges such as auto and its component companies must maintain a minimum 50 percent of domestic value addition. It also needs to increase its investment and sales levels on a yearly basis.
Concerns in terms of sales and investments
The PLI scheme for the auto industry creates different levels of investment goals for the firms to attain in a period of time. As the companies achieve these goals, the amount of investment increases for the companies. Its aim is to encourage huge capital investment in the sector. This scheme aspires for growth and development in automobile and its component industries. Except three-wheelers and two-wheeler auto makers, the segments under Champion manufacturers should expand investment levels from about INR 300 crore in the financial year 2023 to reach about INR 2,000 crore in the financial year 2028. Further, the three-wheeler and two-wheeler manufacturers who currently have to fulfill a requirement of INR 150 crore need to increase investment of about INR 1,000 crore. Similarly, the new entry firms and auto component manufacturers also have to maintain these investment targets.
Apart from investment targets, OEM have to maintain sales targets. The champion auto manufacturer has to reach the goal of INR 125 crore of sales in its first year. It has to fulfil the goal of expansion of annual sales by about 10 percent. On other hand, auto component makers have to maintain the target of INR 25 crore sales in the first year. It also has to achieve the goal of 10 percent growth annually. It becomes difficult for new entry firms to fulfil targets of savings and investments as they also have to work on their entry in the market and building production levels.
Requirements of domestic value addition
The scheme focuses on maintaining 50 percent of domestic value addition. It requires the companies to make the product from using atleast half of the domestic resources only. This target helps the government of India to fulfil the objective of contraction in import levels of raw material and also promote self-sufficiency. However, it adversely affects the development of high-tech auto technologies like advanced sensors, electric powertrains, and semiconductors.
It becomes challenging for new entry companies and small suppliers to keep up with the exhaustive documentation requirements. These documentation requirements track down the sources of supplier networks (consist of tier 2 and 3). Further, some suppliers are worried about possible disclosures of pricing information on purchases.
These meticulous documentation needs are due to challenges faced in schemes such FAME II. The postponement of SOP for DVA in the month of April 2023 caused issues in the efficiency of the scheme, even after an additional one year was given to resolve the issue.
Recommendation for PLI 2.0
The auto and its component companies make investments at different levels of progress of the project. It leads to creation of capital work in progress which is not completely used in the single financial year. To make precise calculation of total investments, it must be added too.
Following DVA target of 50 percent is crucial for global auto companies as they mainly acquire raw material through importing from other countries. It is also important to do thorough analysis of the prevailing supply network in India. In addition to this, digitization of documentation and verification processes will make it more transparent and easier. It is also important to give required training and help to small suppliers in the supply network in order to help them follow the rules with no worries of disclosure of pricing information.
The scheme can work on giving incentives for Research and development in areas of new technology and also for achieving the goal of technology transfer in manufacturing of the product. This will motivate international auto manufacturers to establish centers of Research and Development as well as do joint ventures across India. The scheme can also adopt providing stimulus based on achieving certain milestones. It will lead to injecting a small amount of financing when certain goals are achieved. Overall, it will help in promotion of production in the country.
The PLI 2.0 scheme with necessary changes in certain segments like compliance, stimulus structure, and timelines can help to promote investment in automobiles and its component industry in India. It can aid the development of the industry of production of electric vehicles to high-tech battery technologies.
The image added is for representation purposes only
