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THE INSIGHT

Production Linked Incentive Scheme (PLI) for Automobile & Auto Components
By CMA Ashok Nawal
Oct 11, 2021

GOVERNMENT of India is focusing on promoting environmental friendly electric vehicles and electric batteries. The Phase-I of this Scheme was initially launched for a period of 2 years, commencing from 1st April 2015, which was subsequently extended from time to time and the last extension was allowed up to 31st March 2019. The 1st Phase of FAME India Scheme was implemented through four focus areas namely (i) Demand Creation, (ii) Technology Platform, (iii) Pilot Project and (iv) Charging Infrastructure. Market creation through demand incentives was aimed at incentivizing all vehicle segments i.e. 2-Wheelers, 3-Wheelers Auto, Passenger 4-Wheeler vehicles, Light Commercial Vehicles and Buses.

Subsequently, to provide further boost to achieve the objective FAME-II Scheme was notified in the year 2019. Both the schemes provides the promotion of electric vehicle and incentive for the benefit of consumer.

The PLI Scheme for Automobile & Auto Components will provide the boost bar to manufacturing of Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments - 2 wheelers, 3 wheelers, passenger vehicles, commercial vehicles, Tractors, Automobile meant for Military use and any other Advanced Automotive Technology vehicle as prescribed by MHI depending upon technical developments.

This scheme will provide the incentive Rs. 25,938/- Cr during 2022-23 to 2026-27. PLI Scheme for auto sector will bring fresh investments of over Rs 42,500 crore in five years and incremental production of over Rs 2.3 lakh crore. PLI Auto Scheme will help create additional employment of over 7.5 lakh jobs.

The Government has issued Notification regarding Production Linked Incentive (PLI) Scheme for Automobile & Auto components. The PLI Scheme for Automobile & Auto components and its Guidelines have been notified in the Gazette of India on 23.09.2021. Earlier government approved the Production Linked Incentive (PLI) Scheme for Automobile and Auto Component Industry on 15.09.2021.

The PLI Scheme for the auto sector envisages to overcome the cost disabilities of the industry for manufacture of Advanced Automotive Technology products in India. The incentive structure will encourage industry to make fresh investments for indigenous global supply chain of Advanced Automotive Technology products. Details of the scheme is elaborated below:

Objective:

- Its prime objectives include overcoming cost disabilities, creating economies of scale and building a robust supply chain in areas of Advanced Automotive Technology products.

- It will also generate employment.

- This scheme will facilitate the Automobile Industry to move up the value chain into higher value added products.

Scheme:

- The scheme consists of two components Incentivizing incremental sales of :

- Automobile & Auto Components related to Advanced Automotive Technology and

- New Non-Automotive investor company or its Group companies that may want to participate in this scheme

Investment:

" Investment" as mentioned in Para -3.2(c) of the scheme shall mean:

- Expenditure incurred on Plant, Machinery, Equipment and Associated Utilities : This shall include expenditure on plant, machinery, equipment and associated utilities as well as tools, dies, moulds, jigs, fixtures (including parts, accessories, components and spares thereof) of the same, used in the design, manufacturing, assembly, testing, packaging or processing of any of the eligible products under the scheme. It shall also include expenditure on packaging, freight/transport, insurance, and erection and commissioning of the plant, machinery, equipment, and associated utilities. Associated utilities would include captive power and effluent treatment plants, essential equipments required in operations area such as clean rooms, air curtains, temperature and air quality control systems, compressed air, water and power supply, and control systems. Associated utilities would also include IT and ITES infrastructure related to manufacturing including servers, softwares, and ERP solutions. All non-creditable taxes and duties would also be included in such expenditure.

- Expenditure incurred on Land and Building: The expenditure incurred on land will not be considered for meeting the threshold criteria of Cumulative Minimum Domestic Investment. However, buildings of the main plant and utilities will be considered as part of the investment provided it does not exceed 10% of Minimum Cumulative Domestic Investment defined for a segment.

Eligibility for Automobile & Auto Component Manufacturing Sectors:

a) For Company or its Group company(ies) with existing presence in India or globally in the Automotive vehicle and components manufacturing business

Eligibility Criteria

Auto OEM

Auto-Component

Global group* Revenue (from automotive and/or auto- component manufacturing)

 

Minimum Rs. 10,000 crore.

Minimum Rs. 500 crore.

Investment

Global Investment of Company or its Group* Company(ies) in fixed assets (gross block) of Rs. 3,000 crore.

 

Global Investment of Company or its Group* Company(ies) in fixed assets (gross block) of Rs.150 crore.

b) For new non-automotive investor company or its Group company(ies) that may want to participate in this scheme:

Eligibility Criteria

New Non-Automotive investor company or its Group company(ies) (who are currently not in automobile or auto component manufacturing business)

Global net worth

Rs. 1000crorebased on audited financial statements for year ending March 31, 2021.

Committed investment in India over five year period

As per Minimum New Domestic Investment Conditions mentioned in para - 3.2(c) below.

Group company means two or more enterprises which, directly or indirectly, are in a position to:

Exercise twenty-six percent or more of voting rights in the other enterprise;

Or

Appoint more than fifty percent of members of Board of Directors in the other enterprise. (As defined in the FDI Policy Circular of 2020)

NOTE :  

1) Non-Automotive company or its Group company(ies) can qualify for this scheme provided they present a clear business plan to invest in India and generate revenues from Advanced Automotive Technology vehicles or Advanced Automotive Technology components manufacturing.

2) The applicant new Non-Automotive Investor company or its Group company(ies) will be eligible to claim incentive subject to meeting cumulative minimum new domestic investment to be achieved for a particular year. The applicant will also have to meet the % Year on Year growth criteria from the minimum threshold fixed from the first year.

3) New Non-Automotive Investor company or its Group company(ies) will be defined as those who have no revenue from manufacturing of Automobile or auto- components as on 31st March 2021.

4) An applicant new Non-Automotive Investor company or its Group company(ies) must satisfy the entire eligibility criteria

c) Minimum New Domestic Investment Conditions:

Cumulative New Domestic Investment Condition of Performance (Rs. Crore)

Cumulative new domestic investment to be achieved

Champion OEM (Except 2W & 3W)

Champion OEM 2W

& 3W

Component Champion

New Non-Automotive investor (OEM) Company or its Group companies

New Non-Automotive investor (Component) company or its Group companies

Upto or before March 31, 2023

300

150

40

300

80

Upto or before March 31, 2024

800

400

100

800

200

Upto or before March 31, 2025

1400

700

175

1400

350

Upto or before March 31, 2026

1750

875

220

1750

440

Upto or before March 31, 2027

2000

1000

250

2000

500


NOTE :

- New investments should be made from the same legal entity as the one applying for the incentive.

- Cumulative new domestic investment made starting 1st April 2021 shall be considered under this condition.

- The approved Company is required to meet the cumulative investment condition for each year.

- In the event, any approved company meets the investment condition few years before the end of the scheme; it will be eligible for incentives throughout the tenure of the scheme subject to meeting other conditions of the scheme.

- In case the approved company fails to meet the cumulative domestic investment condition in any given year, it will not receive any incentive for that year even if the threshold for Determined sales value is achieved. However, it will still be eligible to receive the benefits under the scheme in the following years if it meets the cumulative domestic investment condition defined for that year.

(d) Preference will be given to eligible company or its Group company(ies) committing to front load their investment during the scheme period. Proposed investment commitment will be evaluated by calculating the Net Present Value (NPV) of the investment using the bank rate as the discounting factor.

Application:

The window for receiving applications through the Notice Inviting Applications will be for a period of 60 days and application to be furnished on online portal along with financial & supporting documents.

Note: Documents required for verifying eligibility for both the components of the scheme will include, but not be limited, to the following:

- Audited financial statements (Profit & loss, balance sheet) of the legal entity applying for the scheme as well as that of the global group company.

- For base lining and establishing incentives, eligible sales value in the base year and domestic investment made starting from 01.04.2021, if any, the applicant needs to furnish a statutory auditor's certificate.

- The documents should be audited and validated by a statutory auditor.

The Application Form:

The Application Form along with details of all necessary supporting documents, to be submitted at the time of application, will be notified separately by Ministry of Heavy Industries (MHI) in due course of time.

A non-refundable application fee would be payable for each application.

Tenure of the Scheme:

Tenure of the scheme will be from 2022-23 to 2026-27 and base year will be considered for the calculation of incremental investment is 2019-20.

Eligible Sales Value and Determined Sales Value under the Scheme:

- Eligible Sales Value for Vehicle Segment: Total sales (Net of GST) for eligible vehicles.

- Eligible Sales Value for Component Segment: Total sales (Net of GST) for eligible components

Or apportioned value of eligible component as determined by Testing Agency of MHI.

- Determined Sales Value for Vehicle Segment: (Eligible Sales Value for Vehicle Segment for a particular year) minus (Eligible Sales Value for Vehicle Segment for Base year).

- Determined Sales Value for Component Segment : (Eligible Sales Value for Component Segment for a particular year) minus (Eligible Sales Value for Component Segment for Base year).

The scheme is designed to incentivize Advanced Automotive Technology products only viz eligible Advanced Automotive product on standalone basis at component level or in integration with the vehicle having appropriate value apportionment on the vehicle side. Therefore, an approved legal entity as Automotive OEM company or New Non-Automotive Investor company can avail incentives under both components of the scheme subject to the condition that any eligible product shall be incentivized only once under the scheme. Any double claim of incentive for the same product under component level and vehicle level can lead to disqualification of the legal entity/entities involved on this ground alone in addition to any other legal action as applicable under the law.

Particulars of the Scheme

Champion OEM Incentive scheme

Component Champion incentive scheme

Applicability

Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments - 2 wheelers, 3 wheelers, passenger vehicles, commercial vehicles, Tractors, Automobile meant for Military use and anyother Advanced Automotive Technology vehicle as prescribed by MHI depending upon technical developments linked with the sales value and the products so approved by Ministry of Heavy Industry under the scheme.

Pre- approved Advanced Automotive Technology components of all vehicles, CKD/SKD kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles and tractors including automobile meant for military use and any other Advanced Automotive Technology components prescribed by MHI depending upon technical developments linked with the sales value and the products so approved by Ministry of Heavy Industry under the scheme.

Target Segment

Automotive OEM company or its Group company(ies) and new Non- Automotive Investor company or its Group companies.

Auto-component manufacturing company or its Group companies, Automotive OEM company or its Group companies and new Non-Automotive Investor company or its Group companies.

Eligibility

- Only for Approved Products of approved Projects

- Minimum 50% domestic value addition will be required

- Growth incentives (% of benefits) are applicable on Determined Sales Value.

- Testing Agency will ascertain the value of Advanced Automotive Technology components to be assigned / apportioned for the purpose of eligible sales value under the scheme.

- Only for Approved Products of approved Projects

- Minimum 50% domestic value addition will be required

- Growth incentives (% of benefits) are applicable on Determined Sales Value.

- Testing Agency will ascertain the value of Advanced Automotive Technology components to be assigned / apportioned for the purpose of eligible sales value under the scheme.

Scheme Incentive Mechanism

 

- The approved applicants will be entitled to receive incentives (% benefit) on Determined Sales Value subject to meeting other conditions of the scheme.

- For the approved New Non-Automotive Investor company (who is currently not in automobile or auto component manufacturing business) eligible sales value in the base year will be taken as zero.

- Threshold Determined Sales Value for the first year is Rs.125 crore in respect of all companies viz. existing Automotive and New Non-Automotive Investor companies under this component of the scheme to claim incentive.

- Year on Year (YoY) growth of minimum 10% in Determined Sales Value of first year i.e Rs.125 crore has to be achieved by all approved companies viz. existing Automotive and New Non-Automotive Investor companies, to become eligible to receive incentive.

- In case the approved company fails to meet the threshold for increase in Determined Sales Value over the threshold for the first year i.eRs.125 crore, for any given year, it will not receive any incentive for that year. However, it will still be eligible to receive the benefits under the scheme in the next year if it meets the threshold for that particular year calculated on the basis of 10% YoY growth over the threshold for the first year and thereafter for 4 consecutive years from when the incentive under the scheme becomes applicable (FY 2022-23). This provision will provide level playing field to all approved companies viz. existing Automotive and New Non-Automotive Investor companies as well as safeguard the approved applicants who preferred to front load their investment, against adversities of the market demand conditions in subsequent years of the scheme.

- The approved Companies that achieve a target cumulative increase in Determined sales of Rs. 10,000 crore across the duration of the scheme will receive an additional incentive of 2%. This additional2% incentive is applicable on the cumulative increase in Determined Sales Value in excess of Rs. 10,000 crore.

- Incentive proposed under this scheme to Electric vehicle manufacturers will be independent of the incentives given under FAME II scheme where incentives are provided to customers who buy the vehicles and not to the manufacturers. Incentives can be claimed under this scheme for Battery Electric vehicles having Advanced Chemistry Cell (ACC) batteries for which incentives have been claimed under the PLI scheme for ACC.

- The Approved applicants will be entitled to receive incentives (% benefit) on the Determined Sales Values of Advanced Automotive Technology components subject to meeting other conditions of the scheme.

- For the approved New Non-Automotive Investor company (who is currently not in automobile or auto component manufacturing business) eligible sales value in the base year will be taken as zero.

- Threshold Determined Sales Value for the first year is Rs.25 crore in respect of all companies viz. existing Automotive and New Non-Automotive Investor companies under this component of the scheme to claim incentive.

- Year on Year (YoY)growth of minimum 10% in Determined Sales Value of the first year i.e. Rs. 25 crore has to be achieved by all approved companies viz. existing Automotive and New Non-Automotive Investor companies, to become eligible to receive incentive.

- In case the approved company fails to meet the threshold for increase in Determined Sales Value over the threshold for the first year i.eRs. 25 crore, for any given year, it will not receive any incentive for that year. However, it will still be eligible to receive the benefits under the scheme in the next year if it meets the threshold for that particular year calculated on the basis of 10% YoY growth over the threshold for the first year and thereafter for 4 consecutive years from when the incentive under the scheme becomes applicable (FY 2022-23). This provision will provide level playing field to all approved companies viz. existing Automotive and New Non-Automotive Investor companies as well as safeguard the approved applicants who preferred to front load their investment, against adversities of the market demand conditions in subsequent years of the scheme.

- The approved Companies that achieve a target cumulative increase in Determined Sales Value of Rs. 1250 crore across the duration of the scheme will receive an additional 2% incentive. This 2% additional incentive is applicable on the cumulative increase in Determined Sales Value in excess of Rs. 1250 crore.

- Additional incentive has also been provided for components of Battery Electric Vehicles (BEV) and Hydrogen fuel cell vehicles in order to promote future technology vehicles.

Incentive Slabs

Incentive Slab is based on Determined Sales Value and percentage and incentive slabs as follows:

- Upto Rs. 2000 Cr : 13%

- > 2,000 to 3,000 : 14%

- > 3,000 to 4,000 : 15%

- >4000 : 16%

Additional 2% incentive is given if determined sales value is more than Rs 10,000 Cr over 5 years.

Incentive Slab is based on Determined Sales Value and percentage and incentive slabs as follows:

- Upto Rs. 250 Cr : 8%

- > 250 to 500 : 9%

- > 500 to 750 : 10%

- >750 : 11%

Additional 2% incentive is given if determined sales value is more than Rs 1250 Cr over 5 years and additional5% incentive is given to Battery Electric vehicles & Hydrogen fuel cell vehicles components


Value Addition:

The term "Value addition" will be construed as the percentage of manufacturing activity being undertaken in that referred part of the supply chain. % domestic value addition= [(Ex-factory price of the product (net of GST) - (minus) Import content i.e. sum of FOB value of all imported components or materials in the final product including import duties) / Ex-factory price of the product (net of GST)] x 100.It will be certified by Testing agency of MHI.

Incentive:

Maximum Incentive under the Scheme

Applicable Incentive (Financial Year)

Disbursement of Incentive (Financial Year)

Total Incentive (Rs. Crore) Indicative incl administrative exp

2022-23

2023-24

604

2023-24

2024-25

3,150

2024-25

2025-26

5,925

2025-26

2026-27

7,199

2026-27

2027-28

9,060

Total

25,938

Calculation of Incentive

- In order to receive the incentives, the approved companies need to upload their annual claims under the scheme, along with audited financial statements / supporting documents, as certified by a Chartered Accountant and any other document, as specified.

- Annual payment to be initiated after review of claims and verification of meeting the criteria and thresholds.

- Threshold Determined Sales Value for the first year is Rs.125 crore in respect of all companies viz. existing Automotive and New Non-Automotive Investor companies under this component of the scheme to claim incentive.

- Year on Year (YoY) growth of minimum 10% in Determined Sales Value of first year i.e Rs.125 crore has to be achieved by all approved companies viz. existing Automotive and New Non-Automotive Investor companies, to become eligible to receive incentive.

Maximum incentive per company

Total Incentive per entire Group company(ies) is capped at Rs. 6,485crore(25% of total incentives outlay under this Scheme). The cap on incentive payable to the approved company or Group of company(ies) as stated above would be incorporated as part of the agreement.

- To retain flexibility in the implementation of the scheme, the scheme proposes fungibility of funds within and across the components of the scheme.

- Incentive payable under this scheme to Electric vehicle manufacturers will be independent of/in addition to the incentives given under FAME-II scheme where incentives are provided to customers who buy the vehicles and not to the manufacturers. Under this PLI scheme, incentives are being given to manufacturers not the consumers.

- Incentives may also be claimed under this scheme for vehicles having Advanced Chemistry Cell (ACC) batteries for which incentives have been claimed under the PLI scheme for ACC because Battery Electric vehicle (BEV) manufacturers have the freedom to source ACC batteries from anywhere and in case this incentive is not allowed, they may resort to imports of ACC batteries for cost cutting.

Mechanism:

Mechanism will remain the same as notified under the different PLI Scheme and administrative authority will be the same as notified under FAME II Scheme.

Audit:

The scheme shall have provision for cost audit by External Auditor (Cost or Chartered Accountant) appointed by MHI and the expenses will be met within the allocation of the scheme.

As a matter of fact, under Section 148 of the Companies Act 2013 and Companies (Cost Records and Audit) Rules, 2014, Automobile & Auto Components Manufacturer have to maintain Cost Records and also get the same audited by Practising Cost Accountant as defined under Section 2 of Cost & Works Accountants Act 1959 and therefore, audit has to be carried out by Cost Accountant as appointed Ministry of Heavy Industry.

Conclusion:

This Scheme will prove the booster for environmental friendly Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments and components thereof. However, basic investment limit has been kept very high, therefore, most of the MSME will be deprived of such scheme.