But, the government must be mindful that incentives alone will not tempt global OEM-players
Given the need to move to clean energy and non-polluting vehicles, the government has done well to target EVs and hybrids in the Rs 26,400-crore auto PLI scheme. It could be several years before EVs account for a major share of the passenger car market, and the two-wheeler market could get there quicker because the government is simultaneously supporting demand.
Nonetheless, since incumbent auto-players are unlikely to add ICE capacity at a time when demand remains subdued and the environment is turning electric, it makes sense to put money to work in the EVs and hybrids spaces. The response may not be as good as anticipated, but it will be a start; even a few OEMs and component makers can nudge the ecosystem forward.
There is no harm in laying the ground for the evolution of a strong, advanced-technology vendor base; in the process, the labour force too will become more skilled. It is important though that these players turn out to be as competitive and that the government doesn’t leave import duties high to simply give local manufacturers the edge. That would be a pity. The ultimate objective should be to create strong, competitive companies.
There are those who argue offering incentives to private sector players may not be the right way to go about strengthening the manufacturing base. The point is it is going to be difficult to re-start investments in a meaningful manner without some sops. Moreover, the funds are not being disbursed upfront, that will be done only once the company has achieved the specified sales targets. If the targets are not achieved, the company doesn’t receive the incentive. The idea of the PLI is to increase production and, thereby, employment opportunities (direct and indirect). It is true the employment potential indicated by the ministries does seem a tad exaggerated.
However, manufacturing high-end products will help skill labour. Again, it is possible the government will not get the incentive structure or the sales thresholds right for every sector; it could turn out these have been either over-estimated or under-estimated. However, even if the incentive levels and sales targets turn out to be by and large correct, the objective would have been achieved.
The incentives of 8-13% with an additional 5% thrown in for electric and hydrogen-fuel-cell vehicles are attractive, and some 60 companies could quality; however, it is the larger OEMs and leading EV suppliers that are likely to corner the incentives. OEMs need to have revenues of at least Rs 10,000 crore and fixed assets of Rs 3,000 crore; component-makers need to have revenue of Rs 500 crore and Rs 150 crore investment in fixed assets.
From the available details, and the observations of industry bodies, it appears start-ups may not be eligible and, therefore, some pure-play EV two-wheeler makers would be left out; they would, of course continue to receive the benefits of the FAME scheme and sops given by the states. There is an opportunity for ICE two-wheeler players as also car-makers to make use of the scheme, though whether their existing EV subsidiaries would quality or whether new ones need to be set up is not clear. Again, while global OEMs may be inclined to set up production units in India, the government must be mindful that incentives alone will not tempt them. It is a fact that is not easy to do business in India and the government must try and address the many issues, among them, red tape and poor infrastructure.