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Governance Structure: Automobile Industry in India

Governance Structure: Automobile Industry in India

The automobile industry in India contributes to 7% of the country’s GDP and is a major pillar in the country’s economy. The government has implemented various industrial policies to support the industry’s growth and plan developmental goals related to the industry. One such major goal related to the automobile industry and its contribution to the economy is increasing the GDP contribution of the industry from 7% to 12%. These goals are supported and enhanced through various programs. Some industrial policies that have been implemented to support the growth and development of the automobile industry in India include:

  • Automotive Mission Plan (2016-2026)- The major goal of increasing the contribution of the industry to the GDP from 7% to 12%, and creating millions of new jobs is part of the Automotive Mission Plan (2016-2026). The plan seeks to make the automotive industry the engine of the Make in India initiative. It also aims to increase exports by the automobile industry to 30-40% of the total output, from the current 8%. It is one of the most significant government programs for the development of the automobile sector in India. It is the next step of the AMP (2006-2016), which was also an effective program that supported the growth of this industry.
  • Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India)- This program was launched in 2015 to promote the adoption of electric and hybrid vehicles. It includes a range of incentives and subsidies for electric and hybrid vehicles, as well as support for research and development activities, and charging infrastructure. According to IBEF, as of June 2021, a total of US$ 117 million has been spent under the FAME-II scheme. A total of 87,659 electric vehicles have been supported through incentives, and 6,265 electric buses have been sanctioned for various state/city transportation undertakings.
  • National Automotive Policy- This was the first comprehensive industrial policy for the automobile sector in India. It was implemented in 2002. It was made with the vision of making the automotive industry in India globally competitive and doubling its contribution to the economy by 2010. Some of the key measures were allowing automatic FDI up to 100% in automobile and auto part manufacturing, maintenance, upgradation and development of roads, promotion of R&D by providing suitable fiscal and financial incentives, and encouragement of use of low emission fuel technology and formulation of an auto fuel policy to ensure availability at minimum social costs. A new version of this policy by the Department of Heavy Industry is currently in the draft stage, with 5 major objectives – increase contribution to the GDP, increase exports, drive employment generation and skill development, increase local R&D investments, and promote clean, efficient, and sustainable mobility. Its vision is “to provide a long-term, stable and consistent policy regime and to have a clear roadmap for the automotive industry, making India a globally competitive auto R&D and manufacturing hub and achieving the targeted objectives of green mobility”.

The government of India has also implemented various tariff and non-tariff regulations to protect the domestic automobile industry, such as import duties on automobiles and auto parts.

PLI Scheme for the Automobile Industry

The Production Linked Incentive (PLI) Scheme is a program by the Government of India that aims to boost domestic manufacturing in 14 selected sectors by providing financial incentives to companies that increase production within India.

The PLI scheme for the automobile sector was aimed at enhancing India’s Manufacturing Capabilities for Advanced Automotive Products (AAT). The total budget outlay announced for the automobile sector PLI scheme was Rs. 25,938 crore. It proposes financial incentives up to 18% to boost domestic manufacturing of Advanced Automotive Technology products and attract investments in the automotive manufacturing value chain.

Its prime objectives include overcoming cost disabilities, creating economies of scale and building a robust supply chain in automotive manufacturing. It also aims to make the industry globally competitive and increase exports. It will also create new jobs.

The scheme consists of two components, incentivizing incremental sales of automobiles, and auto components related to Advanced Automotive Technology: the champion OEM incentive scheme (for automobiles) and the component champion incentive scheme (for automobile components).

An approved applicant shall be eligible for benefits for 5 consecutive Financial Years but not beyond for the Financial Year ending 31/03/2027

Government organizations involved:

The government ministry responsible for the scheme and its administration is the Ministry of Heavy Industries (MHI). According to the MHI notification of 23 September 2021, the scheme will be implemented through a nodal agency, which will act as a Project Management Agency (PMA). The PMA will be responsible for providing secretarial, managerial, and implementation support, and carrying out other activities, as assigned by the Ministry of Heavy Industries. Other ministries may have a secondary or indirect role in this scheme.

The Ministry of Heavy Industries is involved in the development of the heavy industries sector in India, the automobile industry being one of them. It formulates plans, policies, and programs for the development of this sector, and also provides financial assistance to the industries under it.

Application Procedure

A special application portal was created (pilauto.in). The application was made to the  Ministry of Heavy Industries (MHI) through the form available on the portal. The application opening notification was published on 9 November 2021. Applicants had 60 days from the date of the announcement to submit the application. The scheme was open for receiving applications till 23:59:59 hours IST on 9 January 2022.

Eligibility Criteria

The applicant company or a group of companies applying under this scheme have certain common eligibility criteria for their application to be considered, and which they need to fulfull to qualify for incentives. These have been notified by the Ministry of Heavy Industries. (To view them in more detail, please visit the links). The eligibility criteria for applicants under this scheme as given by the MHI in its notification on 23 September 2021 are as follows.

  • For a company or its group company(ies) with existing presence in India or globally in the Automotive vehicle and components manufacturing business:

The above Eligibility criteria has to be met based on audited financial statements for the year ending March 31, 2021.

  • For a new non-automotive investor company or its group company(ies) that may want to participate in this scheme:

A non-Automotive company or its Group company(ies) 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. New Non-Automotive Investor company or its Group company(ies) will be defined as those who have no revenue from manufacturing of Automobile or auto- components as on 31st March 2021.

  • Minimum new domestic investment conditions

Incentives under the scheme

The PLI Scheme provides financial incentives, in the form of direct financial assistance to the approved companies. The amount of assistance is based on the increase in production and sales of eligible products. The incentives are calculated as a percentage of the incremental sales of eligible products over the base year. The exact percentage of the incentive depends on the level of domestic value addition as well as the export performance achieved by the individual company. The incentives under the scheme as given by the MHI in its notification on 23 September 2021 are as follows. (For detailed information, please view the notification).

Financial Year 2019-20 shall be treated as the base year for calculation of eligible sales value (not applicable for approved New Non-Automotive Investor Company). Incentive under the scheme will be applicable starting from the Financial Year 2022-23 which will be disbursed in the following Financial Year i.e. 2023-24 and so on for a total of five(05) consecutive Financial Years, not beyond FY27.

Champion OEM incentive scheme

The Champion OEM Incentive scheme is a ‘sales value linked’ scheme, applicable on Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments – 2 wheelers, 3 wheelers, passenger vehicles, commercial vehicles, Tractors, Automobile meant for Military use and any other Advanced Automotive Technology vehicle as prescribed by MHI depending upon technical developments. It is an incentive scheme targeted to address the cost disabilities related to Advanced Automotive Technology vehicles faced by OEMs.

As per the Ministry of Heavy Industries the approved applicants will be entitled to receive incentives (% benefit) on Determined Sales Value subject to meeting other conditions of the scheme. For approved New Non-Automotive Investor companies, eligible sales value in the base year will be considered zero. Year on Year (YoY) growth of minimum 10% in Determined Sales Value of first year i.e ₹125 crore has to be achieved by all approved companies. If an approved company fails to meet the threshold for increase in Determined Sales Value over the threshold for the first year i.e ₹125 crore, for any given year, it will not receive any incentive for that year. But it will still be eligible to receive benefits in the following years if conditions are met. Companies that achieve a target cumulative increase in Determined sales of ₹ 10,000 crore across the duration of the scheme will receive an additional incentive of 2%.

Incentives under this scheme to Electric vehicle manufacturers will be independent of the FAME II scheme incentives. However, only those Battery Electric Vehicles will be eligible for incentives which meet the performance criteria of FAME-II scheme.

Incentive outlay

The Expected annual outlay is as follows:

The yearly payouts are indicative, and can be changed based on sales/market conditions.

The total incentive payout will be capped at Rs. 25,938 crore during the 5 years. Administrative expenses will be absorbed within this limit. Under the ‘Champion OEM’ Incentive Scheme’ the incentive per company will depend on the Determined Sales Value of vehicles related to Advanced Automotive Technology, subject to meeting the cumulative new domestic investment criteria, and Year on Year growth. Total incentive per company or group of companies is capped at Rs. 6485 crore (25% of total outlay).

Recent developments

According to the press release by MHI on 15 March 2022 the scheme was successful in attracting a proposed investment of Rs. 74,850 crore against the target estimate of investment of Rs. 42,500 crore over a period of five years. A total of 95 applicants were approved: 75 applicants were approved under the component champion incentive scheme, and 20 were approved under the Champion OEM incentive scheme. The proposed investment of ₹ 45,016 crore is from approved applicants under Champion OEM Incentive Scheme.

The approved companies under the Champion OEM incentive scheme are:

Champion OEM (except 2W and 3W): Ashok Leyland Limited, Eicher Motors Limited, Ford India Private Limited, Hyundai Motor India Limited, Kia India Private Limited, Mahindra & Mahindra Ltd.,  PCA Automobiles India Private Limited, Pinnacle Mobility Solutions Private Limited, Suzuki Motor Gujarat Private Limited, Tata Motors Limited, Champion OEM 2W and 3W: Bajaj Auto Limited, Hero MotoCorp Ltd., Piaggio Vehicles Private Limited, TVS Motor Company Limited, New Non-Automotive Investor (OEM): Axis Clean Mobility Private Limited, Booma Innovative Transport Solutions Private Limited, Elest Private Limited, Hop Electric Manufacturing Private Limited, Ola Electric Technologies Private Limited, Powerhaul Vehicle Private Limited.

Dhruv Chaudhari

Dhruv Chaudhari is a Research Intern at Tatvita. Presently he is pursuing his bachelors in the Liberal Arts department at the Savitribai Phule Pune University.    

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