The scheme, worth Rs 25,938 crore, aims to boost local manufacturing of advanced automotive technology (AAT) products and requires companies to make stipulated fresh local investments to receive incentives.
However, many companies did not make these investments due to uncertainties surrounding the scheme. One of the main reasons was the delay in the release of a standard operating procedure (SOP) to calculate domestic value addition (DVA). The scheme mandates a minimum of 50% domestic value addition by manufacturers.
The SOP for calculating the DVA was only released on April 27, 2023, despite the scheme becoming operational in April 2022.
In the absence of the SOP, companies claim that they were unable to receive certification of compliance in time for the first year of the scheme. Sudhir Mehta, managing director of Pinnacle Industries, one of the scheme participants, stated, “Because scheme details like the SOP were not released, lenders did not release the funds as they were waiting for reasonable certainty that we would get the benefits which would allow us to pass them on to customers.”
“Now that clarity has come, we are planning to make the investment this year,” Mehta added. Queries sent to the Ministry of Heavy Industries, which is implementing the PLI scheme for the auto sector, have not been answered as of press time.
Out of the 95 companies shortlisted for the PLI scheme in the auto industry, 20 are in the original equipment manufacturer (OEM) category, including Maruti Suzuki and Tata Motors, and 75 are component makers, including Bosch and Lucas TVS.
A few companies, such as Ford India, and some component makers, have dropped out of the scheme earlier due to various reasons.
According to a senior official in an auto ancillary company, multiple changes in the calculation of the DVA formula have deterred their company from planning capital expenditure for the PLI scheme. This uncertainty affects the calculated internal rate of return and could discourage long-term investments.
“A frequent change in the rules of the game is detrimental for long-term investment,” the official added.
Some companies, especially component makers, were also hoping for an expansion of the list of eligible advanced technology products to receive subsidies.
However, no such expansion has occurred, causing some companies to become uncertain about continuing with the scheme. “If the government were to add new products to the list, the investments under the scheme could significantly increase,” said Saurabh Agarwal, partner at EY.
Expanding the list would promote domestic manufacturing of high-tech auto components and increase industry participation in the scheme. Many companies are still awaiting the certificate of compliance before proceeding with capital expenditure, according to sources.