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The rigorous documentation requirements under the PLI scheme reflect lessons from earlier programs like FAME II, where adherence to localization norms presented challenges, prompting clawbacks from the applicants. With India’s flagship Production Linked Incentive (PLI) scheme for the automobile and auto-component sectors well underway, the focus now shifts to PLI Scheme 2.0. PLI has been one of the bedrocks of the government to drive Make in India campaign across sectors. Automotive PLI 1.0 initiative also saw encouraging response early on. However, it also encountered certain hurdles like domestic value addition (DVA) threshold of 50%, high year-on-year (YoY) investment expectations and sales requirements.Investment and sales challenges
The scheme’s graduated investment targets, intended to spur large-scale capital infusion, have proven ambitious. For instance, Champion OEMs (excluding two- and three-wheeler manufacturers) must escalate investments from INR 300 crore in FY 2023 to INR 2,000 crore by FY 2028. Similarly, two- and three-wheeler OEMs are required to ramp up from INR 150 crore to INR 1,000 crore, with comparable graduated targets for component manufacturers and new entrants.
The sales threshold requirements further reinforce these targets, mandating that Champion OEMs achieve a first-year sales mark of INR 125 crore, followed by a 10% annual growth. For component manufacturers, the initial sales threshold is INR 25 crore, with the same growth expectations. New entrants, starting from zero base-year sales, have found it particularly challenging to meet these requirements while managing production ramp-up and market entry.
Domestic value addition norms
An important aspect of the scheme is the 50% DVA requirement, which mandates that half of a product’s value—including raw materials, components, and labor—be sourced domestically. While this aligns well with the government’s goals of self-reliance and reducing import dependency, meeting this benchmark has presented challenges for advanced automotive technologies such as electric powertrains, semiconductors, and high-tech sensors. The extensive documentation requirements, which trace sourcing deep into tier-2 and tier-3 supplier chains, can be particularly demanding for smaller suppliers and new entrants. Additionally, there are concerns among few suppliers regarding the potential disclosure of proprietary procurement pricing details due to the substantiation norms.The rigorous documentation requirements under the PLI scheme reflect lessons from earlier programs like FAME II, where adherence to localization norms presented challenges, prompting clawbacks from the applicants. However, the delayed release of the SOP for DVA in April 2023 created complexities, despite a one-year extension to address implementation hurdles.
Practical constraints and suggested improvements in second iteration
To address industry concerns, several refinements to the scheme are worth considering:
Inclusion of CWIP: Many automotive investments are staggered, resulting in Capital Work in Progress (CWIP) figures that may not be fully capitalized within the same financial year. Recognizing CWIP toward annual investment thresholds would enable more accurate compliance for manufacturers that are in the process of building or upgrading facilities.
Graduated DVA goals: While the 50% local content target underlines self-reliance, a phased or graduated path—particularly for advanced components—would allow companies to incrementally increase domestic sourcing. Such an approach can be pivotal for large global players who rely on well-established, but largely imported, component ecosystems. While the FAQs issued have provided relief, it would be essential to review the supplier ecosystem in India to meet the requirements fully.
Accessible compliance tools: Digitizing the verification process—through standardized templates, dashboards—could simplify the exhaustive paper trail. Support and training for smaller tiered suppliers is equally critical, ensuring they can comply without compromising proprietary pricing data.
PLI Scheme 2.0 could adopt a more flexible framework by introducing milestone-based incentives thereby, enabling smaller payouts linked to interim targets. Additional incentives for R&D in emerging technologies and technology transfer bonuses to encourage global OEMs to set up R&D centres or joint ventures in India could further boost localisation.
As the industry continues to innovate—from electric vehicle manufacturing to cutting-edge battery technologies—an evolved, more adaptable PLI 2.0 could become the catalyst for long-term, sustainable growth. If the scheme can address current bottlenecks by refining its timelines, compliance mechanisms, and incentive structure, it stands poised to bolster India’s position as a hub for next-generation automotive investments.
- Published On Jan 29, 2025 at 08:23 AM IST
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