How relevant is the scheme to the auto sector? Are only new fuel technologies eligible for this?
the story So Far: Center approved on Wednesday Production Linked Incentive Scheme for Automobile and Drone Industries With a budgetary outlay of ₹26,058 crore. This tranche is part of the overall plan for 13 sectors highlighted during the budget announcements for 2021-22, with a total outlay of ₹1.97 lakh crore.
Which plan is being emphasized?
The incentive scheme for the auto sector aims to reduce the impact of the costs involved when investing in technologies that will power vehicles in the future. While existing players – apart from new entrants – can take advantage of the leverage for new investments, incentives referred to by the government as ‘advanced automotive technology products’ are available. These include technologies using battery electric vehicles and hydrogen fuel cells.
How relevant is the scheme to the auto sector?
According to data from the Society of Indian Automobile Manufacturers, the Indian auto sector was once set to emerge as the third largest auto market by 2020, behind the US and China. After reaching a peak of annual sales of 3.3 million passenger vehicles (SIAM) in FY19, the segment saw a decline of 2.77 million units in the subsequent year. Similarly, two-wheelers peaked at 17.4 million in FY19, reaching a peak of 21.2 million. Then, the pandemic broke out, resulting in factory lockdowns and creating negative consumer sentiment. The country was ranked fifth in 2020. Global interest in the Indian market has waned. General Motors pulled out of India in 2017. Driven by cumulative losses of nearly $2 billion, Ford last week announced its decision to close up shop in the country.
Noting that the pandemic – along with the resultant semiconductor supply crunch and container availability issues – had only further eroded the sector’s prospects, automotive giants such as Maruti Suzuki chairman RC Bhargava and TVS Motor chairman Venu Srinivasan recently I urged the government to act and protect the industry. interests. Against this background, the scheme aims to promote technologies in the region, especially those that help reduce fossil fuel emissions. The government expects the scheme to generate fresh investment of over Rs 42,500 crore, an incremental generation of over Rs 2.3 lakh crore and an additional 7.5 lakh jobs.
Are only new fuel technologies eligible for this?
Yes. The move to clean technologies came even as electric-vehicle (EV) maker Tesla urged the Center to cut tariffs on imported vehicles. Encouraging local production could lead to more investment in this segment. Furthermore, India has become keen to reduce dependence on oil imports and reduce pollution, even as it tries to meet commitments under climate change agreements. With most automakers betting on buyers’ preference for personal mobility following the pandemic-induced hygiene restrictions, the government may want to take advantage of the mood and promote emission-friendly EVs; But it is still a challenge for the vehicle-owners to make a full recharge of the battery as soon as possible as they will be refilling the petrol/diesel tank. EVs are not considered suitable for long-distance driving, given the current poor proliferation of power storage technologies as well as charging networks. According to the India Energy Storage Alliance’s December 2020 report, EVs were set to grow from 3.8 lakh units in the country in FY20 to around 63 lakh by 2027. Statistics show that the total EV count was just a small fraction of the passenger. Vehicles sold in India According to the Society for Manufacturers of Electric Vehicles, the number of charging stations as of March stood at 1,800. The Grant Thornton-FICCI report estimates that the country will need around 4 lakh charging stations by 2026 which will meet the needs of two million electric vehicles. According to government data, the number of conventional fueling stations stood at around 77,215 as of May 1, 2021.
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What can customers expect?
The purpose of the announcement is to provide benefits to the supply side of the equation. The industry, including SIAM, has been demanding reduction in the GST rate applicable on the average passenger vehicle from 28% to less than 28% to help the customers. The government recently said it was ready to “tamper with” the rate for automobiles. In November 2020, Tamil Nadu announced 100% exemption in road tax on electric vehicles for two years. Earlier that year, the Center revised the norms for FAME-II. Due to these factors, as well as a steady rise in the prices of conventional fuels, the number of electric vehicles on Tamil Nadu’s roads doubled to 14,300 in the eight months to August this year.
What are the components of the plan?
In its announcement on Wednesday, the government said that under the Champion OEM incentive scheme, automakers can avail the ‘sale price linked’ scheme, which is applicable to ‘battery electric vehicles and hydrogen fuel cell vehicles of all segments’. The Component Champion Incentive Scheme is also linked to sales and on vehicle components, Completely Knocked Down (CKD) / Semi-Knocked Down (SKD) Kits, vehicle aggregates of 2-Wheelers, 3-Wheelers, Passenger Vehicles, Commercial Vehicles applies. Tractor, it added.
It has been learned that incentives will range from 8% to 18% of the annual selling price of vehicles or components, and will be given to firms subject to certain conditions – including a minimum investment over five years and 10% sales growth each. Year. New OEM entrants must commit to invest ₹2000 crore over a period of 5 years, while new manufacturers of parts will have to invest ₹500 crore.
Auto parts manufacturers will be encouraged to invest in advanced accessories such as sensors and radars used in connected cars, automatic transmissions, cruise control and other electronics, along with the production of parts for clean cars.
what lies ahead?
The ecosystem is also evolving with a similar urgency to be green. Hydrogen fuel cells use hydrogen from the air to generate oxygen and electricity. The only emission in this process is non-polluting water vapor. Behemoth Reliance Industries recently announced an investment of ₹75,000 crore in four new sectors, one of which is a fuel cell factory. Hydrogen fuel cells could power automobiles and help replace traditional internal combustion engines.
As with the PLI scheme, as long as companies see demand – which, in turn, is linked to affordability in India and hassle-free charging networks for EVs – they are bound to invest. However, investors will be keen to avoid tripping over the small print of the PLI scheme, as was the case with the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles-II scheme.
In early 2020, Hero Electric shelved its plans to invest ₹700 crore as the eligibility of electric vehicle specifications came into question.
Under FAME I, low-speed two-wheelers with a top speed of up to 25 km/h were eligible for an incentive of up to ₹17,000, while high-speed ones were eligible for ₹22,000. However, under FAME II, which came into effect from April 1, 2019, a minimum range of 80 km per charge for electric two-wheelers and a minimum top speed of 40 kmph was mandatory to qualify for the incentive of 20,000.
According to data from the Society of Manufacturers of Electric Vehicles (SMEV), sales of FAME II-eligible electric two-wheelers in the April-December 2019 period stood at just 3,000 units as against 48,671 units a year ago, when FAME I was in place. 93.84 percent drop
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