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Auto sector, drone PLIs: Green light for new-age tech in India

INTERNATIONAL DESK: The Indian cabinet approved production linked incentive (PLI) schemes to the tune of ₹26,058 crore for the automobile and ancillary sectors, clearly signalling India’s move towards green mobility, and drones.

For the auto sector, the incentives offered over a five-year period seek to attract more than ₹42,500 crore investment in the production of environmentally cleaner electric and hydrogen fuel cell vehicles.

The Indian government expects this to generate ₹2.3 lakh crore of incremental production and 760,000 jobs.

The PLI scheme for drones will run for three years and offer ₹120 crore in incentives, expected to trigger ₹5,000 crore in investment, yield output of ₹1,500 crore over this period and create 10,000 new jobs. The government recently announced a policy on drones aimed at giving the industry a boost.

‘To Create Champion Industries’

The incentives are available to both existing automotive companies as well as new investors. Vehicles powered by traditional internal combustion engines, including those running on petrol, diesel, CNG and ethanol, are also eligible for any new-age technologies they bring to the automotive ecosystem.

Electric vehicle major Tesla has shown interest in India while Ola recently started the sale of its electric scooters. Tata Motors is the biggest electric vehicle maker in the country while Mahindra & Mahindra is firming up its plans on this front.

The country’s biggest automaker Maruti-Suzuki does not have any significant EV plans as yet.

“This scheme will give a fillip to the manufacturing of advanced automobiles and components and drones in the country and also provide a path to create champion industries in these sectors,” said information and broadcasting minister Anurag Thakur while announcing the scheme.

The incentives for the auto industry are expected to attract manufacturers looking to diversify away from China.

Incumbents will need to bring fresh investment of at least ₹2,000 crore over the next five years to qualify for the scheme. For two- and three-wheeler makers this threshold is ₹1,000 crore.

The automotive PLI scheme is in addition to the ₹18,100 crore advanced chemistry cell and ₹10,000 crore Faster Adaption of Manufacturing of Electric vehicles (FAME) schemes.

These “will enable India to leapfrog from traditional fossil fuel-based automobile transportation system to environmentally cleaner, sustainable, advanced and more efficient electric vehicles (EV) based system,” the government said in a statement.

A new player will also have to invest at least ₹2,000 crore. Existing auto component makers will have to invest at least ₹250 crore while new ones will need to bring in ₹500 crore or more. Linked to different slabs, the incentives for the auto sector are pegged at 13-16% of determined sales value with an additional two percentage points if such sales cross ₹10,000 crore over five years.

In the case of components, the incentives are 8-11% with 2pp additional incentive for over ₹1,250 crore sales over the period, and an additional 5pp for EV and hydrogen fuel cell components.

The government has so far offered PLI for 13 sectors, including those announced on Wednesday, promising Rs 1.97 lakh crore in incentives to give domestic manufacturing a boost.

In an exception to the drone industry, the government has agreed to keep the PLI rate constant at 20% for all three years, the civil aviation ministry said. For other sectors, the PLI rate declines every year.

Overall, the focus is to promote the transition to advanced technologies in the auto and component sector and to hasten the move to electric and hydrogen fuel cell vehicles, which are expected to gain volumes in the coming years, a government official said.

Still, the outlay for the automotive PLI scheme has been halved from the earlier plan of Rs 57,043 crore. The limited budget will likely result in tough competition for the PLI scheme, said Saurabh Agarwal, tax partner, automotive sector, EY India.

“Thrust on incentivising new-age technologies will facilitate the creation of a state-of-the-art automotive value chain in the country and give a much-needed impetus to the manufacturing of cutting edge automotive products in India,” said Sunjay Kapur, president of the Automotive Component Manufacturers Association of India. (The Economic Times)