The next big push for Electric Vehicles - Complete Study on PLI Scheme

PLI Scheme for Automobile Industry is part of the overall announcement of PLI Schemes for 13 sectors made earlier during the Union Budget 2021-22, with an outlay of ? 1.97 lakh crore. With the announcement of PLI Schemes for 13 sectors, minimum additional production in India is expected to be around ? 37.5 lakh crore over 5 years and the minimum expected additional employment over 5 years is nearly 1 crore.

The PLI scheme for the auto sector will incentivize high-value Advanced Automotive Technology vehicles and products. It will herald a new age in higher technology, more efficient and green automotive manufacturing.

What’s the PLI Scheme about?

The PLI Scheme for the auto sector is open to existing automotive companies as well as new investors who are currently not in the automobile or auto component manufacturing business. 

The initial notification had laid out the foundation for a road to create a push in the Automobile and Auto Component Industry providing a huge incentive layout of Rs. 26,058 Crore and to attract fresh investments of Rs. 42,500 Crores over the period of 5 years respectively.

The Champion AUTOMOTIVE Incentive scheme & the Component Champion Incentive scheme is a ‘sales value linked’ scheme, applicable on Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments and on Advanced Automotive Technology components of vehicles, Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles and tractors etc. respectively.

The scheme is divided into 2 parts:

1. Champion AUTOMOTIVE Incentive Scheme: The Champion AUTOMOTIVE Incentive scheme is a ‘sales value linked’ scheme, applicable on Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments and any other Advanced Automotive Technology vehicle prescribed by MHI depending upon technical developments.
2. Component Champion Incentive Scheme: The Component Champion Incentive scheme is a ‘sales value linked’ scheme, applicable on pre-approved Advanced Automotive Technology components of all vehicles, CKD/SKD kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles and tractors including automobile meant for military use and any other Advanced Automotive Technology components prescribed by MHI depending upon technical developments.

PLI Scheme Outlay:

The scheme for Automobile and auto components will be implemented over a period of five years starting from FY 2022-2023.

Pre-Eligibility Criteria:

Basic Eligibility Criteria: 

a.    For a company or its Group companies with an existing presence in India or globally in the Automotive vehicle and components manufacturing business:

b.    For new non-automotive investor companies or its Group companies that may want to participate in this scheme:

Post Eligibility Investment Criteria:
(All figures in Crores)

OR

Incentives:

1)    Incentive Slabs for Champion Automotive and New Non-Automotive Investor Company

2)    Incentive slab for Component Champion and New Non-Automotive (Component) Investor company

Conditions:

• Non-Automotive companies or its Group companies can qualify for this scheme provided they present a clear business plan to invest in India and generate revenues from Advanced Automotive Technology vehicles or Advanced Automotive Technology components manufacturing.
• The applicant's new Non-Automotive Investor company or its Group companies will be eligible to claim incentives subject to meeting cumulative minimum new domestic investment to be achieved for a particular year. 
• The applicant will also have to meet the % Year on Year growth criteria from the minimum threshold fixed from the first year.
• New Non-Automotive Investor company or its Group companies will be defined as those who have no revenue from the manufacturing of Automobile or auto- components as on 31st March 2021.
• An applicant's new Non-Automotive Investor company or its Group companies must satisfy the entire eligibility criteria.
• On an annual basis, the approved company under the Component Champion Scheme will have to separately report break-up of sales value of components specific to Battery-EV and Hydrogen Fuel Cell vehicles produced in India.
• Minimum 50% domestic value addition will be required and Phased Manufacturing Programme similar to FAME-II Scheme will be followed.
• New investments should be made from the same legal entity as the one applying for the incentive.
• The cumulative new domestic investment made starting 1st April 2021 shall be considered under this condition
• The approved Company is required to meet the cumulative investment condition for each year.
• In the event, any approved company meets the investment condition few years before the end of the scheme; it will be eligible for incentives throughout the tenure of the scheme subject to meeting other conditions of the scheme.
• In case the approved company fails to meet the cumulative domestic investment condition in any given year, it will not receive any incentive for that year even if the threshold for Determined sales value is achieved. However, it will still be eligible to receive the benefits under the scheme in the following years if it meets the cumulative domestic investment condition defined for that year.
• Preference will be given to eligible companies or their Group companies committing to front-load their investment during the scheme period. Proposed investment commitment will be evaluated by calculating the Net Present Value (NPV) of the investment using the bank rate as the discounting factor.
• Pre-approval of eligible products will be done by 'Testing Agency' of MHI as Advance Automotive Product as per the guidelines issued by MHI from time to time
• Any eligible product will be incentivized only for once – Component level or Vehicle level.
• Incentive will be applicable on the Determined Sales Value which is defined as the incremental eligible sales of a particular year over the base year
• For the Champion AUTOMOTIVE incentive scheme, threshold Determined Sales Value for the first year is Rs 125 crores in respect of all companies viz. existing Automotive and New Non-Automotive Investor companies to claim incentives.
• Similarly, for the Component Champion incentive scheme, the threshold Determined Sales Value for the first year is Rs 25 crore in respect of all companies viz. existing Automotive and New Non-Automotive Investor companies to claim incentives.
• YoY growth of minimum 10% of the threshold Determined sales value (as mentioned above) for the first year, and thereafter for the next 4 years, has to be achieved to claim incentives.
• In case the company fails to meet the threshold for Determined sales value in any given year, it will not receive any incentive for that year. 
• However, it will still be eligible to receive the benefits under the scheme in the next year if it meets the threshold of Determined sales defined for that year subject to meeting the condition of Minimum New Domestic Investment for the claim year.
• Group Companies shall mean two or more enterprises which, directly or indirectly, are in a position to exercise twenty-six percent or more of voting rights in the other enterprise or Appoint more than fifty percent of members of Board of Directors in the other enterprise.
• Above Eligibility criteria to be met based on audited financial statements for the year ending March 31, 2021.
• In case the company fails to meet the cumulative domestic investment condition in any given year, it will not receive any incentive for that year even if the threshold for Determined sales value is achieved. However, it will still be eligible to receive the benefits under the scheme in the following years if it meets the cumulative domestic investment condition defined for that year.
• An approved applicant shall be eligible for benefits for 5 consecutive Financial Years & the Financial Year 2019-20 shall be treated as the Base Year for calculation of Eligible sales.
• The Basic Eligibility criteria are based on audited financial statements for the year ending 31.03.2021.

Conclusion:

The PLI Scheme for the auto sector envisages overcoming the cost disabilities to the industry for the manufacture of Advanced Automotive Technology products in India. The incentive structure will encourage the industry to make fresh investments for the indigenous global supply chain of Advanced Automotive Technology products. Further, this will increase India’s share in the global automotive trade.

In a single move, the Government of India has changed the game for all-electric vehicles’ manufacturers, Value Added Resellers, and Trading Companies giving them a golden opportunity to prove themselves.

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