Cabinet Decisions: India Shifts Focus To EVs, Hydrogen Cells With Rs 26,000-Crore PLI Scheme

A worker secures a battery pack fitted to the undercarriage of a Volkswagen AG ID.3 electric automobile in an assembly line cradle at the automaker's factory in Dresden, Germany. (Photographer: Liesa Johannssen-Koppitz/Bloomberg)

Cabinet Decisions: India Shifts Focus To EVs, Hydrogen Cells With Rs 26,000-Crore PLI Scheme

India cut incentives to boost local production of automobiles and shifted the focus to electric vehicles and hydrogen fuel cells as the nation plans to build an ecosystem for cleaner mobility.

The union cabinet slashed the outlay for production-linked incentives for the auto sector by half to about Rs 26,058 crore, Union Minister Anurag Thakur told the media after the meeting. The government also announced incentives worth Rs 120 crore for the drone sector.

The scheme for auto industry has two components -

  1. Champion OEM Incentive Scheme: It’s a ‘sales value linked’ scheme, applicable on electric and hydrogen fuel cell vehicles in all segments.

  2. Component Champion Incentive Scheme: A ‘sales value linked’ scheme for advanced automotive technology components, completely knocked-down and semi knocked-down kits, vehicle aggregates of two-and three-wheelers, passenger and commercial vehicles, and tractors.

The scheme for the sector is part of the overall production-linked incentives announced for 13 sectors in the budget 2021-22 with a total outlay of Rs 1.97 lakh crore.

“The PLI scheme for auto sector will bring fresh investments of over Rs 42,500 crore in five years and incremental production of over Rs 2.3 lakh crore,” Thakur said.

According to Dipti Lavya Swain, EV and energy expert and partner, HSA Advocates, who also advised the NITI Aayog on the Rs 18,100-crore battery PLI scheme, “undoubtedly, the government is changing gears and shifting focus towards EVs, hydrogen fuel vehicles and all other clean energy fueled vehicles (CEFV). The slash in outlay to Rs 26,000 crore is largely to accommodate CEFV and perhaps also to still have emergency room if required for other vehicles and components.”

Other highlights:

  • The incentives for the auto sector are open to existing automotive companies as well as new investors.

  • To qualify for the scheme the existing automotive players will have to make new investments of Rs 1,000 crore over the next five years, while a new player will have to invest over Rs 2,000 crore.

  • To qualify for the scheme on the auto components side, the new entrant will have to invest Rs 500 crore while existing players will have to invest Rs 250 crore.

The incentives for drones, Thakur said, are expected to bring fresh investments of more than Rs 5,000 crore in three years and incremental production of over Rs 1,500 crore.

Industry Lauds

The Automotive Component Manufacturers Association of India said the PLI would incentivise investments in technologies such as automatic transmission assembly, electronic power steering system, sensors, super capacitors, ECUs, parts of EVs, hydrogen fuel cells and its parts, adaptive front lighting, automatic braking, tyre pressure monitoring system, and collision warning systems, among others.

“With global economies de-risking their supply chains, the PLI will aid India in developing into an attractive alternative source of high-end auto components,” Sunjay Kapur, president at the lobby of auto parts makers, said.

The fresh incentives come alongside a similar scheme for advanced chemistry cells, and the Faster Adaption of Manufacturing of Electric Vehicles plan. These, according to the government’s statement, will help India leapfrog from traditional fossil fuel-based transportation system to cleaner, sustainable, advanced and more efficient EV-based system.

Tata Motors Ltd. said the scheme was “both progressive and transformational”.

Several meaningful incentives have been offered across the entire value chain engaged in manufacturing of battery-powered electric vehicles and hydrogen fuel cell, as well as their supporting infrastructure and exports.
Girish Wagh, Executive Director, Tata Motors

Encouraging production of auto components using advanced technologies will boost localisation, domestic manufacturing and also attract foreign investments, he said in an emailed statement.

According to Venu Srinivasan, chairman of TVS Motor Co., the revised focus of PLI scheme on alternative fuels, electric vehicles and utilisation of advanced technological innovation will help the industry move faster toward the future technologies.

“There is a sense of haste in developing these technologies in India and this scheme gives the right impetus to the industry to move rapidly in that direction,” he said.

Saurabh Agarwal, tax partner (automotive sector) at EY India, said the beneficiaries in the PLI scheme for auto sector are likely to be 10 vehicle manufacturers, 50 auto component manufactures and five new non-automotive investors planning to enter into the automotive sector.

“With the limited budget of Rs 26,000 crore likely the industry will see a tough competition with respect to award of the PLI scheme,” he said.

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