Evaluating India’s Automotive PLI Scheme Progress

The Production-Linked Incentive (PLI) scheme for the automobile and auto components sector was initiated in 2021. It aimed to establish India as a global manufacturing powerhouse for advanced automotive technologies. However, recent data reveals disappointing outcomes. As of now, only 12 out of 82 approved applicants have achieved the mandated 50% domestic value addition (DVA) target. This indicates that most participants have not qualified for the incentives. The current situation calls for a reassessment of the scheme’s targets and approach.

Background of the PLI Scheme

The PLI scheme was launched with budget of Rs 25,938 crore over five years. Its primary goal is to promote manufacturing, especially of zero-emission vehicles, including battery electric and hydrogen fuel cell vehicles. The scheme aims to encourage localisation and build resilient supply chains, both domestically and globally.

Current Status and Challenges

Three years into the PLI scheme, progress has been slow. Major players like Tata Motors and Mahindra & Mahindra have succeeded in meeting targets. However, most companies, especially smaller entrants, have struggled. Challenges include inadequate supply chain infrastructure and limited availability of advanced automotive components. Additionally, many potential participants have not made any investments in the initial years of the scheme.

Comparison with Smartphone PLI Scheme

The smartphone PLI scheme serves as a benchmark. It has successfully increased domestic value addition without stringent DVA requirements. Companies must meet incremental sales and production targets based on a fixed base year. This flexible approach has led to export growth and improved local content.

Recommendations for Improvement

To enhance the effectiveness of the automotive PLI scheme, the government should consider revising the DVA criteria. Easing these requirements could encourage more companies, especially smaller ones, to participate. Providing additional support and resources for new entrants may also help bridge the gap between the scheme’s objectives and the realities faced by stakeholders.

Future Prospects

The PLI scheme has the potential to transform India’s automotive landscape. However, for it to succeed, stakeholders must address existing challenges. A more adaptable framework could help realise the vision of a robust automotive manufacturing sector.

Questions for UPSC:

1. Critically discuss the impact of the Production-Linked Incentive scheme on India’s automotive industry.
2. Examine the challenges faced by new entrants in the automotive sector under the current PLI scheme.
3. Estimate the potential benefits of easing domestic value addition criteria for the PLI scheme.
4. Point out the differences between the PLI schemes for smartphones and automobiles in India.

Answer Hints:

1. Critically discuss the impact of the Production-Linked Incentive scheme on India’s automotive industry.

1. Launched in 2021 with a budget of Rs 25,938 crore, aimed at promoting zero-emission vehicle manufacturing.
2. Only 12 out of 82 applicants met the 50% domestic value addition target, indicating limited success.
3. Major players like Tata Motors and Mahindra & Mahindra succeeded, but smaller firms struggled.
4. Challenges include inadequate supply chain infrastructure and high initial investment costs.
5. Potential for transformation exists, but current progress is underwhelming and needs reassessment.

2. Examine the challenges faced by new entrants in the automotive sector under the current PLI scheme.

1. High initial investments required to meet stringent criteria deter participation from smaller firms.
2. Inadequate supply chain infrastructure limits access to essential components for new entrants.
3. Steep learning curve for adapting to high-value manufacturing standards poses barrier.
4. Limited market confidence affects new entrants’ willingness to invest in advanced automotive products.
5. Many potential participants did not invest during the first two years of the scheme, reflecting disconnect with objectives.

3. Estimate the potential benefits of easing domestic value addition criteria for the PLI scheme.

1. Easing DVA criteria could increase participation from a wider array of companies, especially smaller players.
2. Encouraging initial investments may lead to a more vibrant automotive ecosystem and job creation.
3. Flexibility in requirements could mirror the successful smartphone PLI scheme, encouraging growth without stringent targets.
4. Increased competition could enhance innovation and drive advancements in manufacturing technologies.
5. Gradual increments in DVA targets could help firms build capacity over time, leading to sustained value addition.

4. Point out the differences between the PLI schemes for smartphones and automobiles in India.

1. The smartphone PLI scheme does not mandate strict domestic value addition, focusing instead on incremental sales and production targets.
2. Automobile PLI scheme emphasizes a 50% DVA target, which has proven challenging for most participants.
3. Smartphone scheme has led to export growth and local content increase, while automotive progress has been slow.
4. Smartphone manufacturers benefit from established global supply chains, unlike many new entrants in the automotive sector.
5. The smartphone PLI has a more flexible and adaptive framework compared to the rigid structure of the automotive scheme.