Indian Government Announces PLI Scheme for Auto Sector

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Indian government has announced a Production-Linked Incentive (PLI) scheme for the automotive and drone industry with a budgetary outlay of INR 26,058 crore. The PLI scheme for the auto sector is aimed at overcoming the cost limitations to the industries for the manufacturing of Advanced Automotive Technology products in India. The PLI scheme will address the needs of both the automobile as well as auto components industries and is open to existing automotive companies as well as new investors.

The scheme aims to bring in fresh investment of over INR 42,500 crore over a period of 5 years and incremental production of over INR 2.3 lac crore for automobile and auto component industries. In the component sector, products like flex-fuel kits, EV parts, hydrogen fuel cells, and hybrid energy storage systems have been covered. On the other hand, the combustion engine parts that are covered under the PLI scheme include electronic control units (ECUs), exhaust after-treatment, and fuel injection (FI) systems.

To avail of the benefits, existing auto manufacturers are required to make new investments of Rs 1,000 crore over the next five years. New investors are required to invest over Rs 2,000 crore to avail these benefits. The new entrants in the auto component sector are required to invest Rs 500 crore, while the existing players are required to invest Rs 250 crore.

Sources indicated that large auto players such as Hyundai, Tata Motors, Maruti Suzuki have already started studying their production plan keeping in mind the PLI scheme. Several smaller players and the startups, who have just recently begun their journey in the EV space, have also begun discussions to push up production in line with the PLI scheme.

Automobile in India is one of the most important sectors contributing to 7.1% of GDP and employs about 37 million people directly and indirectly. The sector has been under stress due to pandemic and then subsequently hit hard due to chip shortage. The overall capacity utilization rate at the four-wheeler makers dropped to up to 55% at the end of FY21 from nearly 75% in FY19. The future of the auto industry would be driven by new technologies and it is here that PLI pushed manufacturing would come to aid. The PLI scheme is expected to increase India’s share in the global automotive trade and will also create over 7.5 lac job opportunities.

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