Indian Automobile Sector Focused On Leveraging PLI Scheme

Data shared by the Society of Indian Automobile Manufacturers (SIAM) shows that India exports an estimated four million cars on average. The domestic sales range between 20 to 25 million, according to a news report on Mint. Maruti Suzuki India Ltd is among automakers making future plans despite the intense uncertainty on car sales and supply chain hold-ups over the last few months. As it turns out, the largest production-linked incentive scheme has been the trigger.

Maruti Suzuki’s parent company, Suzuki Motors Corp, wants to team up with its partner and Japanese carmaker, Toyota Motor Corp, to tap into the PLI. According to two individuals familiar with the matter, harnessing the production-linked incentive subsidy scheme will boost India’s automobile exports. One of the two individuals who chose anonymity said, “Big plans are already underway. There is a likelihood Suzuki will make India its only manufacturing hub for various products in the next coming years.” So, what is the PLI scheme, its benefits, and the challenges it poses?

The PLI scheme plan 

The government is still working on the PLI scheme for automakers, but a similar incentive worth ₹18,000 crore is available for manufacturers of lithium-ion cells used in EV batteries. The primary objective of the PLI scheme is to transform India into a hub for developing and manufacturing electric cars. And, of course, to reduce dependency on China in the electric automobile market segment. Tata Motors Ltd, chief financial officer, P. Balaji, said, “India has a vast passenger vehicle market and it’s reasonable to have a market for batteries because it’s an essential part of EVs. So, the first thing we should do is secure EV battery supply sources and the PLI scheme will help meet this goal.”

Increased production of EVs

Since 2014, the Modi government has been at the forefront, pushing for the production and adaptation of electric cars to reduce carbon emissions and eliminate the need for fossil fuels. However, government efforts have been unsuccessful even after introducing FAME (faster adoption and manufacturing of hybrid and electric vehicles) schemes. It’s worth noting batteries and linked parts account for almost 40 percent of electric vehicle raw material expenses. Therefore, providing auto manufacturers incentive schemes to produce battery cells locally can help boost EV production. The increased production of electric cars will encourage consumers to choose electrified vehicles when shopping for automobiles at dealerships. That’s because they’ll have a variety of models to select and assurance of affordable prices.

Potential pitfalls

While the PLI scheme guarantees numerous benefits in the auto sector, there are potential drawbacks. One of the downsides is that only a few automobile makers stand a chance to apply for incentives. Another pitfall is that the government might cut the ₹57,000 crore budget due to the country’s economic problems caused by the coronavirus crisis. High localization standards also pose a serious challenge, according to one senior executive at an auto manufacturer. This is because most vehicles exported from India are designed with several components sourced from China.

If well-executed, the production-linked incentive scheme could pave the way for a new manufacturing ecosystem across India throughout the next decade. It could also help India cut its reliance on China’s imported auto parts. But to achieve this goal, automakers must understand the benefits and challenges the scheme presents.

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