Auto PLI out of bounds for start-ups

The proposed incentives for original equipment manufacturers range from 13% to 18% of determined (incremental) sales value, while those for component manufacturers vary from 8% to 13%.

By:September 25, 2021 9:25 AM

Start-ups and most of the non-automotive companies may have to give the `25,938-crore production-linked incentive (PLI) scheme for the auto sector a miss due to the high thresholds of revenue and investment.  Incumbent auto majors like Maruti Suzuki will have to set up new facilities for advanced technological products to be able to reap benefits.

The scheme, notified by the department of heavy industries, has capped incentives per auto group at an elevated level of Rs 6,485 crore, or 25% of the total outlay. It reflects the government’s intention of luring only large investors and creating few global champions to bolster the country’s supply-chain in advanced auto products. The incentives are meant to offset the cost disabilities of the country vis-à-vis its peers.

The notification says new non-automotive investors wishing to tap the scheme must have a global net-worth of Rs 1,000 crore and a clear business plan for investment in advanced automotive technologies. These new original equipment manufacturers (OEMs) will have to progressively raise their investment to at least Rs 2,000 crore by March 2027. Those new players wishing to take advantage of the scheme for auto components, have to invest Rs 500 crore or more.

The scheme has two parts — it incentivises incremental sales of automobiles and auto components that qualify as advanced automotive technology products. Investors have to fulfil both sales and investment targets to get the benefits.

To be eligible for the incentives, existing OEMs must have a minimum of Rs 10,000 crore in global revenue and Rs 3,000-crore investment in fixed assets. Similarly, extant auto-component manufacturers must have minimum revenue of Rs 500 crore and fixed asset investment of Rs 150 crore to qualify for the benefits.

As FE has reported, the scheme also seeks to promote investments in advanced clean auto technology with higher incentives, which could be good news for companies like Tesla that are eyeing a slice of the Indian market. Even domestic manufacturers — such as Tata Motors (which currently sells the highest number of electric cars in the country), Mahindra & Mahindra and motorcycle companies TVS Motor and Hero MotoCorp — could benefit as they plan to make their presence felt in the electric vehicle segment.

The scheme will be effective from FY23 (incentives will be disbursed from FY24 for five years) and the base year for computing sales value would be FY20.

The proposed incentives for original equipment manufacturers range from 13% to 18% of determined (incremental) sales value, while those for component manufacturers vary from 8% to 13%. Those making advanced clean tech components (battery electric vehicles and hydrogen fuel cell vehicles) will get additional 5-percentage-point incentive.

The lowest incentive of 13% for OEMs will be extended to those that record the determined sales of less than Rs 2,000 crore. Those witnessing determined sales in excess of Rs 4,000 crore will get 16%. An additional 2-percentage-point incentive will be granted to those players that record cumulative sales of over Rs 10,000 crore over five years.

Similarly, component manufacturers recording determined sales of less than Rs 250 crore will get 8% (lowest benefit) and those posting sales above Rs 750 crore will get 11%. An additional 2-percentage-point incentive will be granted to those component makers that record cumulative sales of more than Rs 1,250 crore over five years.

If the eligible company fails to meet the cumulative domestic investment condition in any given year, it will not receive any incentive for that year even if the threshold for determined sales value is achieved.

However, it will still be eligible to receive the benefits in the following years if it meets the cumulative domestic investment condition defined for that year.

The notification says the list of advanced automotive technology vehicles, including battery electric vehicles and hydrogen fuel cell vehicles, will be prescribed by the heavy industry ministry from time to time, depending on technological developments.

Pre-approval of eligible (advanced automotive technology) products will be done by the testing agency of the ministry and a minimum of 50% domestic value addition will be required.

“Year-on-year growth of minimum 10% in determined sales value of first year i.e Rs 125 crore has to be achieved by all approved companies…to become eligible to receive incentive,” the notification says.

The scheme will be implemented through a nodal agency. Such agency will act as a Project Management Agency (PMA) and be responsible for providing secretarial, managerial and implementation support and carrying out other responsibilities, as assigned by the ministry.

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