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MOSL: EXPERT SPEAK (AUTOMOBILES) — PLI for Auto sector focuses on ‘Atmanirbhar Bharat’; Eligibility criteria may not favor older start-ups, smaller OEMs

Expert Speak (Automobiles) — PLI for Auto sector focuses on ‘Atmanirbhar Bharat’; Eligibility criteria may not favor older start-ups, smaller OEMs

 

Mr Saurabh Agarwal, Partner, EY

Mr Agarwal is a Partner with the Indirect Tax practice of EY India and is based out of Gurugram. He has over 12 years of experience in the areas of GST, customs, and government incentives/subsidies. He has been extensively involved in advising Auto companies in optimizing their supply chains through transaction taxes. He is also an advisor/knowledge partner on various industry association panels. 

We hosted Mr Saurabh Agarwal, Partner – E&Y, to understand his perspective on the PLI scheme for the Auto sector. While these discussions are based on the understanding of the scheme, a detailed policy document is not available yet. The objective of this scheme is to develop local capabilities and capacities in advanced technologies for the Automotive industry by incentivizing the industry to make fresh investments. This scheme could potentially change the competitive landscape as the eligibility criteria may not favor smaller OEMs and older start-ups. Also, it seems the PLI incentive would be on a value-add basis. Here are the key takeaways from our meetings.

 

• Eligibility for the PLI scheme: According to Mr Agarwal, 15 OEMs (includes five new OEMs) and 50 component manufacturers could be selected after meeting the eligibility criteria for the scheme. Higher and front-loaded investments by the manufacturer would be preferred. The scheme is currently restricted to EVs and hydrogen fuel cells (not available for hybrid vehicles). Also, the policy does not currently cater to charging infrastructure components.
• Cap at company and component/vehicle levels: The subsidy would be divided into various sub-segments (but the government is not expected to share these details). There will be a clear breakup between vehicles and components. There could be a cap on incentives at the company level. The share of incentives for a company that fails to meet the criteria in any particular year could be transferred to another company that does.
• OEMs may get lion's share of the budget: Of the INR259.4b allocated to the PLI scheme, OEMs could be allocated around 70-75% of the total outlay (i.e., INR180-190b), and the balance could be allocated to auto component manufacturers.
• Incentives to be on value-add basis: In the event where both auto component suppliers and auto OEM are availing incentives under the PLI scheme, OEMs would be able to claim incentives only on value add, and there would be no double benefit