Government of India’s vision is to make India ‘AtmaNirbhar’, enhance manufacturing capabilities and exports. Manufacturing sector growth not only increases investment in the country but it also creates job opportunities and adds value to the GDP growth rate of the country. In other words, manufacturing sector growth has always been important as an employment generator.
To make India self-reliant the Government of India has announced the Production-linked incentive (PLI) schemes for 13 key sectors for a period of five years starting from fiscal year (FY) 2021-2022. Production-Linked Incentive (PLI) scheme objective is to incentivize companies on their incremental sales on the manufacturing of automotive products by Indian firms over the period of five years from the base year of 2019 to 2020. The scheme also provides incentive to foreign companies to invest in technology in manufacturing automotive components. The investment by foreign firms in the Indian market will not increase the market competitiveness of domestic firms but will also increase production capacity of electric vehicles in the country.
The PLI Scheme for the auto sector aims to minimize the escalated cost of production of auto components manufacturing Indian firms. The sales driven incentive scheme for automotive and non-automotive firms willing to enter in the Indian market with an innovative will strengthen Indian firms’ production capacity and will create Indian firms space in the world supply chain of auto-components. The production-linked incentive scheme gives an eligible manufacturing company a 4-6 percent incentive on incremental sales over the base year of 2019-20 for a five-year period. The PLI scheme will incentivize large domestic and global players to boost the production, build a competitive ecosystem and would lead to a more inclusive growth. It is designed to boost the domestic manufacturing sectors, reduce imports, improve the cost competitiveness of domestically manufactured goods, and increase the production of manufacturing goods and exports.
The PLI Scheme would also help to contribute to domestic demand and to grow the size and scale of the sector with help of innovative technology and investment capital. It is expected that the PLI scheme from the base year of FY 2019-20 will promote additional investment by domestic auto and auto component manufacturing firms by more than forty two thousand crore and will generate more than seven lakh employment opportunities in the country with an increase in production capacity of more than two lakh crore. Further this will increase India’s share in global automotive trade. The PLI Scheme eligibility for the automobile segment has been divided in two categories of present companies operating in the automotive segment and the new firms including foreign investors willing to enter in the Indian automotive manufacturing segments. The PLI scheme has been divided into two components based on sales value of original auto-equipment manufacturing firms and firms manufacturing auto components. The sales value incentive for the technological incorporation by original manufacturing auto components is eligible for manufacturing batteries for vehicles running on electric and hydrogen cells has been depicted in the graph below.
Source: Press Release Government of India dated 24th September 2021
The production process of the vehicle may comprise of Completely Knocked Down (CKD) and Semi Knocked Down (SKD) kits in auto components segments. The auto component manufacturing process consists of disassembling the manufacturing of the vehicle at the country of origin and then reassembling in another country. Once the vehicle reaches the destination country as a Completely Knocked Down unit it may be required to undergo the assembly inspection before leaving the manufacturing unit. Also, before handing over at the end consumer the vehicle has to go through pre delivery inspection at the dealers and distributors end.
In the case of the Semi Knocked Down auto manufacturing process, the manufacturer of the vehicle partially divides a vehicle at the origin and reassembles in another country. But the vehicle is not ready to sell when it reaches the destination country since it needs to undergo assembly, inspection, quality control and testing before it reaches the manufacturing plant in the destination country. The vehicle is also required to undergo the pre-delivery inspection at the dealers or distributors end as in the case of Completely Knocked Down process before it is sold to the end consumer. .
It can be concluded that India’s automotive Industry is an important economic contributor. The PLI Scheme will increase the competitiveness of the Indian automobile industry and will aid in the globalization of the Indian automotive sector. This will also boost exports and improve manufacturing through economies of scale. As a result, this will aid in demand generation and recover the economy. It will incentivize global companies to invest in India as an opportunity cost to switch from China to India. The challenge for the Indian Government is to ensure effective implementation of the scheme so that the foreign capital in India should go through minimum business frictions with an ease of investment and operational options. This will mitigate the foreign capital investment risk in India and will maximize the benefits of the PLI scheme in auto components to Indian firms.
Key words:
#PLI Scheme #manufacturing #Atmanirbhar #Indian Government #Automative sector
Dr. Neelam Tandon
Professor and HOD (PGDM)
JIMS, Kalkaji
New Delhi
