The scheme also comes at a time when OEMs across the world are planning to shift a part of their supply chain network out of China
Most of the automakers and their part suppliers in India, have already started the process of localizing the components currently imported from China
New Delhi: The union government’s decision to promote India as a manufacturing hub for automobiles and related components, through a production linked incentive scheme with an outlay of ₹57000 crore, is likely to translate into more investments from existing domestic and foreign manufacturers in the auto sector, according to industry executives.
“Keeping in mind the job creation and the sunshine sectors, this scheme has been devised. We want to build our strength in manufacturing and get linked with the global supply chain. This PLI scheme is aimed at getting more efficient and it will make manufacturing easier in India," said Nirmala Sitharaman, finance minister, while announcing the scheme on Wednesday.
It also comes at a time when OEMs across the world are planning to shift a part of their supply chain network out of China to avoid any further disruption in manufacturing operations and reduce their reliance on one country for sourcing bulk of the components.
After announcing the lockdown to contain Covid-19 pandemic, the Indian government has been urging automakers in the domestic market to reduce import of components especially from China and increase exports of components and vehicles from India. Prime minister Narendra Modi also launched the Atmanirbhar campaign to promote local manufacturing and exports from India.
The Indian government also put in place import restrictions on components such as tyres to curb flow of low-quality parts from China.
“I believe this is an orbit shifting initiative. Will bring investment, get scale, create jobs and make Indian manufacturing globally competitive," said Pawan Goenka, managing director, Mahindra and Mahindra Ltd on Twitter.
The new incentives to be offered by the union government under this scheme will be in addition to the current incentives offered to the automakers and component manufacturers.
According to an industry executive, Niti Aayog officials have made clear that this incentive will not replace the existing ones and that is a good news for the industry.
“We have been waiting for this announcement for a long time and now it remains to be seen what are the broad contours of the scheme. Manufacturers like Bajaj Auto, Hyundai Motor India and TVS Motors are likely to benefit since they export the most, but it remains to be seen how the government offers the incentives since incentivizing exports is not allowed by WTO," added an industry executive requesting not to be named.
The Ministry of Heavy Industries will work on the finer details of the scheme in the coming weeks.
“The Automotive Industry is a major economic contributor in India. The PLI scheme will make the Indian automotive Industry more competitive and will enhance globalization of the Indian automotive sector. This will also improve export and will make the production better in economies of scale," said Vinkesh Gulati, president, Federation of Automobile Dealers Associations.
Most of the automakers and their part suppliers in India, have already started the process of localizing the components currently imported from China. Some of them have also decided to source these parts from other countries till they manage to set up manufacturing facilities in the domestic market.