The PLI scheme for our automotive sector can accelerate its success

Over the years, India’s automotive industry has become quite competitive and has reached a global scale. India is the world’s largest two-wheeler manufacturer and the fifth largest car and commercial vehicle manufacturer. The sector contributes approximately 35% and 6.4% to our manufacturing and national GDP, respectively, and provides direct and indirect employment to approximately 37.5 million people. In addition, the Goods and Services Tax collection from the automotive industry is approx. ₹1.5 trillion annually, which is about 15% of the total collection.

However, things are not all bright, as there are many complex issues and challenges that need to be addressed immediately to ensure the continued health and growth of this industry. Like other sectors, Covid has caused heavy damage to the automotive sector, with several factors such as cyclical slowdown, India Phase VI transition and supply-chain disruptions making the situation even more dire. Recently, domestic vehicle sales have been at their lowest in many years and exports have also been affected by the lockdown in major global markets. While signs of recovery are now clearly visible, ongoing global supply disruptions, particularly in semiconductors, threaten to curtail the sector’s revival.

While India’s automotive exports account for about $27 billion, or about 8% of total exports, in terms of global automotive trade, a lot of room for growth exists, as India’s current auto-component exports account for only 1% of their global trade. and the value of motor vehicles exported from India in 2019 accounted for about half and one-eighth of exports from Thailand and Mexico, respectively. Further, India’s annual total automotive imports are currently pegged at around ₹1.83 trillion, which is 23% of the total industry sales turnover. A joint study by the Society of Indian Automobile Manufacturers and Automotive Components Manufacturers Association of India estimated that among our top 12 import categories, drive transmission and steering units, engines, electricals and electronics account for 62%, with the largest imports. is from China (at 32). %). Clearly, while we are competitive in some areas, there are technologies and parts that are either not made in India or for which we do not match the global standards, prices or quality requirement.

Rapidly evolving automotive regulations on emissions, safety and energy efficiency, coupled with rapid changes in consumer trends, are driving rapid technological changes globally. This includes a shift towards electrification and increasing levels of vehicle automation and connectivity. Therefore, it is estimated that in 10 years, advanced electronic systems will account for 45% of the car’s value, and the share of lightweight materials will also increase to 60%. We have low levels of localization in these technologies, and unless we act now, Indian industry will be at risk of losing competitiveness and falling behind rivals. The recent disruptions in global supply chains highlight our vulnerabilities and hence it is important for us to ‘Make in India’ on a global scale and quality. For this we have to overcome the existing cost disadvantages in various automotive technologies.

The Auto PLI scheme is one of the largest government supply-side incentive schemes launched for the automotive sector. Given the role of startups and new technology players in the automotive space, the scheme logically covers not only existing auto original equipment and component manufacturers, but also new non-auto investors. The PLI criteria for eligibility, determined by annual growth in new home investment and selling price and localization, provides an equal opportunity to all companies, regardless of their size, area of ​​operation or country of incorporation.

While advanced-technology vehicles include batteries and fuel-cell electric vehicles (EVs), at the component level, the adopted approach is to target advanced-technology components that currently show high import intensity with use in all vehicles. The government has taken into account the industry’s request to keep 2019-20 as the base year for evaluation of incentives and has also built in flexibility to incorporate more technologies.

It is commendable that the government, especially the Ministry of Heavy Industries, has ensured that this scheme addresses the critical challenges faced by the Indian automotive industry. The scheme will not only provide the desired impetus to enhance ‘Make in India’ and reduce imports, but will also facilitate the process of making the industry more competitive globally and overcome the existing cost inefficiencies in high-end technologies. Will help

Notably, the scheme is likely to go a long way in encouraging the Indian automotive industry to move up the value chain in high value-added technologies, thereby accelerating regional growth.

The PLI was announced at the right time and will also help in attracting global investments, as many companies are trying to diversify their supply chains in the context of the pandemic and emerging geopolitical scenarios.

Now the automotive industry must come forward and invest in futuristic technologies, advanced manufacturing and improving its processes as well as skilling its workforce, so as to strengthen India’s integration with global value chains. Given the potential of the auto industry and the strong continued support from the government, I am confident that we can make India a manufacturing hub for advanced, clean and efficient vehicles not only for our domestic market but also for exports.

Vikram Kirloskar is the Chairman of SIAM Passenger Vehicle CEO Council and Vice Chairman of Toyota Kirloskar Motor Pvt Ltd.