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PLI Scheme is Directing the Road Ahead for India's Automobile Industry

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September does not seem to be the month for India’s automobile industry, as Mahindra & Mahindra (M&M) among others decided to halt their productions due to chip shortage. Most industries that bank on chips or semiconductors also have it rough, but the automobile industry is taking the most beating out of this. Since the automobile industry has been giving a shot at equipping its products with new innovations such as hybrid-electric systems, driver-assist, navigation, Bluetooth connectivity and more.

Moreover, the automobile industry appears to have been in high demand for its products, necessitating a heavy reliance on chips for upgrades. As a result, chipmakers have been under tremendous pressure to produce as many chips as possible to satisfy the automobile sector's desire, resulting in a severe chip shortage. Other industries are also to blame for the shortage, but the automobile industry is the most reliant on chipmakers and is now suffering as a result. Therefore, the automobile industry of India is attempting to take it slow until the situation lightens up.

Fortunately, they weren’t wrong on that, as Automobile Component Manufacturers Association (ACMA) announced that the Production Linked Incentive (PLI) Scheme will build a self-sufficient, globally competitive, and future-ready Indian automobile sector.

PLI Attempts to Pool Over Rs.42,500 Crore for the Automobile Industry
Additionally, the PLI scheme for the automobile and auto components industry is expected to bring in a new investment of over Rs 42,500 crore, incremental production of over Rs 2.3 lakh crore, and additional employment opportunities of over 7.5 lakh jobs over a five-year period, according to Union minister Anurag Thakur. Hence, this takes to how PLI was created for the following reasons.

The auto sector initiative aims to eliminate the industry's cost barriers to the manufacture of innovative automobile technology goods in India.

According to Thakur, the incentive structure will encourage the sector to engage in the indigenous global supply chain of Advanced Automobile Technology products.

Existing automobile companies as well as new investors which are not currently in the vehicle or auto component manufacturing business are eligible to participate in the auto sector plan.

This then takes to the understanding of the sub-parts of PLI which boasts two components which are:

Champion OEM Incentive Scheme
As the minister puts it, the Champion OEM Incentive program is a ‘sales value related’ program that applies to all sectors of Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles.

Component Champion Incentive Scheme
The Component Champion Incentive scheme is also a ‘sales value related' but it applies to Advanced Automobile Technology vehicle components, Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits, 2-Wheeler and 3-Wheeler vehicle aggregates, passenger automobiles, commercial vehicles, and tractors.

Incentivizing innovative products such as electric vehicles and alternative fuels, as well as advanced technology like ADAS, ABS, and AT, according to Deloitte India Partner Saurabh Kanchan, will aid in their localization and wider acceptance, hence improving safety and consumer experience

Thus, this PLI scheme for the automobile sector, along with the PLI schemes for Advanced Chemistry Cell (Rs 18,100 crore) and Faster Adaptation of Manufacturing of Electric Vehicles (Rs 10,000 crore), will enable India to transition from a traditional fossil fuel-based automobile transportation system to one that is environmentally cleaner, sustainable, advanced, and more efficient.

Moving on to the drone industry of India, the PLI scheme helps tackle the strategic, tactical, and operational applications of this new technology.

PLI Has One for the Drone Industry
Building capacity and making drones major drivers of India's growth agenda requires a product-specific PLI scheme with clear revenue targets and an emphasis on domestic value addition. Over the course of three years, the initiative will result in investments of Rs 5,000 crore, an increase in eligible sales of Rs 1,500 crore, and an additional 10,000 jobs.

PLI Initiatives to Create New Job Opportunities
In addition to boosting local manufacturing, the initiative aims to create new jobs and aid in the expansion of exports. While fiscal support would help companies' bottom lines, the government intends to recover its fund outlay through tax receipts from increased industry sales.

Besides, one of the government's initiatives is to encourage businesses to invest in cutting-edge technology and products that will help India get a foothold in global markets early in the development of sunrise industries. In May, the government authorized the PLI program, which will cost Rs 18,100 crore and will be used to manufacture advanced chemistry cell (ACC) batteries.

Industry Experts' Take on PLI's Initiatives
ACMA President, Sunjay Kapur in his take on the PLI scheme says that the scheme aims to make India's automobile sector ‘Atmanirbhar’ (self-sufficient), globally competitive, and future-ready. The emphasis on rewarding new-age technology would help India build a state-of-the-art automobile value chain and provide much-needed impetus to the production of cutting-edge automobile products.

Incentivizing innovative products such as electric vehicles and alternative fuels, as well as advanced technology like ADAS, ABS, and AT, according to Deloitte India Partner Saurabh Kanchan, will aid in their localization and wider acceptance, hence improving safety and consumer experience.

He further went on to say that, overall approach appears balanced, however a review of the outlay would be desirable, as business had expected incentives to match the early announcements. The industry's response will now be determined by investment and sales targets.

EVs in India are strongly incentivized, Kanchan noted, with this PLI support supplemented with the ACC battery PLI, FAME - II, and State EV policies for investment incentives as well as demand side benefits.

"The fact that the GST rate has been significantly decreased and that corporate tax exemptions have been significantly increased simply adds to the entire package. The charging infrastructure, battery ecosystem, and last-mile bank finance look to be the missing links", he added.

EY India's Saurabh Agarwal, Tax Partner, Automobile Sector says that, while the initiative encourages car and component manufacturing, the industry is waiting for equivalent legislative measures to encourage the production of commodities needed to build the infrastructure needed to charge such vehicles.

Ten car manufacturers, 50 auto-component manufacturers, and five new non-automobile investors aiming to enter the automobile sector are anticipated to benefit from the PLI scheme for the auto sector.

Shamsher Dewan, ICRA Vice-President and Group Head - Corporate Ratings, stated that the PLI plan will boost local investment and help reduce reliance on imports.

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