Government likely to set tough eligibility criteria for carmakers to benefit from PLI Scheme

With the automobile industry very much keen for subsidies, the government is likely to set tough eligibility criteria for carmakers to qualify for the same under the Production Linked Incentive (PLI) Scheme.

Nirmala Sitharaman, the Finance Minister, on November 11 had announced the Rs 2 trillion production-linked manufacturing scheme to encourage companies in 10 sectors to boost local manufacturing and increase exports. To be eligible for subsidies, carmakers need to have minimum annual exports of Rs 1,000 crore at the parent company level. An official said it is possible that the ministry of heavy industries may revise eligibility norms, making them more stringent when the norms are finally notified. The ministry is working on the eligibility criteria for companies in the automotive industry.

Various reports highlight that export-related revenue and localization of production are the two primary criteria, through which the government will select the beneficiaries. Moreover, if rumors are to be believed, the government wants only the big and relevant carmakers to get the subsidy.

Sources said the stringent rules to access the government’s output-based subsidy are designed to weed out small companies. This is unlikely to hurdle or challenge the country’s biggest automakers such as Maruti Suzuki India Ltd and Hyundai Motor India Ltd. A person said localization norms will be there since the idea of the scheme is to promote manufacturing, and subsequently exports of products, mainly Made in India with locally sourced components and materials. He added that the scheme is being devised very carefully, and a high local content is likely to be one of the main conditions.

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Over the past several months, the government has been urging automakers in the domestic market to reduce imports of components, especially from China, and boost vehicle exports. The objective is to create and promote India as an alternative manufacturing hub for global companies. According to McKinsey & Company, in the Automotive Mission Plan 2026, the government and industry set a target to triple industry revenues to $300 billion and expand exports sevenfold, to $80 billion. To meet these aims, it is estimated that the sector could contribute more than 60 million additional direct and indirect jobs, and the result could be improved manufacturing competitiveness.