The PLI Plan For Our Automotive Sector Can Accelerate Its Success

Context: The new PLI scheme for automotive sector will incentivize the industry to move into higher-value-added technologies and thus spur sectoral growth.

An overview of India’s automotive industry

• Established base: India is the world’s largest two-wheeler maker and fifth-largest car and commercial vehicle manufacturer.
• Economic contribution: The sector contributes 35% and 6.4% to our manufacturing and national gross domestic product, respectively, and provides direct and indirect jobs to around 37.5 million people.
  • Goods and services tax collections from the automotive industry stand at about Rs.1.5 trillion annually, which is roughly 15% of total collections.
• Exports contribution: India’s automotive exports are about $27 billion, or about 8% of total exports

Issues and challenges in auto sector

• Demand-side issues: Cyclical slowdown in demand over last few years and disruptions due to transitions associated with Bharat Stage VI standards implementation.
• Supply-side issues:
  • Supply-chain disruptions as a part of pandemic.
  • Recently, Chip shortages are dampening pace of recovery.
• Holds a meagre share in global market: India’s current auto-component exports comprise a mere 1% of their global trade and the value of motor vehicles exported from India in 2019 was half and one-eighth of the exports from Thailand and Mexico.
• Import dependence:
  • India’s annual total automotive imports are currently pegged at around Rs.1.83 trillion, which is 23% of overall industry sales turnover.
  • A joint study by the Society of Indian Automobile Manufacturers and Automotive Components Manufacturers Association of India estimated that of our top 12 import categories, drive transmission and steering units, engines, electricals and electronics account for 62%, with most imports from China (at 32%).
• Competitiveness challenges: There remain technologies and parts that are either not made in India or for which we haven’t matched the global scale, prices or quality needed.
• Rapid technological shifts: Led by fast-evolving automotive regulations on emissions, safety and energy efficiency, coupled with swift changes in consumer trends.
  • It is projected that in 10 years, advanced electronic systems will account for 45% of a car’s value, and the share of lightweight materials will also increase to 60%.

State intervention - Production-linked incentive (PLI) scheme for the auto sector

• Among the largest supply side incentives scheme: Incentives worth Rs.26,058 cr will be offered under the PLI scheme for auto sector, auto components and drone sector.
• Eligibility:
  • Existing auto sector players will have to make new investments of Rs 1,000 crore over the next five years to benefit from the scheme. New players will have to invest over Rs 2,000 crore.
  • New players in the auto component sector will have to invest Rs 500 crore while existing players will have to invest Rs 250 crores.
• Promoting investments in advanced technologies: The scheme focuses on promotion of manufacture of electric vehicles and hydrogen fuel cell vehicles.

Conclusion: Taking the lead from PLI scheme, automotive industry must step up and invest in future technologies, advanced manufacturing and improving their processes as well as skilling their workforce, so as to bolster India’s integration with global value chains.