Hitting the road with a sensible incentive scheme for auto sector

The ₹26,000-crore performance incentive scheme for the auto sector gives it an emphatic push down the electric vehicles road. The approach is unmistakably futuristic with a single minded focus on tech transition — and with little for players who were expecting relief for being badly hit by the pandemic. The supply-side thrust complements the ₹10,000-crore FAME II initiative unveiled in March 2019 that rests largely on a customer subsidy of over ₹8,500 crore. It also sits well with a PLI for (advanced -chemistry cell) battery manufacture amounting to ₹18,100 crore — a tech focus that goes well with the hectic R&D worldwide in battery storage technologies. India should try to avoid a situation of technological dependency, evident in the case of solar panels and mobile phones, by not being a late mover in the EV space. With EVs accounting for about 2 per cent of total vehicle sales today, despite the FAME incentive, India is nowhere near its 2030 goal of EVs accounting for over half the vehicles sold. The PLI scheme announced on Wednesday incentivises both OEMs and component makers so that an ecosystem can evolve at the earliest. The turnover and investment (fixed assets) criteria are not daunting for a large section of players in both categories (roughly about 10 OEMs and 60 component makers will make the cut). Those who have not taken the EV plunge can still do so.

The scheme, which comes into effect from April 1, 2022 for five years, lays out three sets of criteria for OEMs and component makers alike: investment and turnover levels for being eligible for the scheme; investments to be made over five years; and revenue levels to be achieved over five years, on the basis of which sales incentive is to be given. It also makes a distinction between new and existing players. For example, an OEM will have to make an investment of ₹2,000 crore over five years, and ₹300 crore in the first year. It will receive a sales incentive of 13 per cent upwards for additional revenues of ₹2,000 crore in a year, which increases to 16 per cent for revenues above ₹4,000 crore. A similar scale has been drawn up for component makers. However, cost efficiency depends on scale, and hence any temptation to lower thresholds should be resisted.

There are, however, some areas that deserve attention, such as charging infrastructure. If the FAME II policy sets aside just ₹1,000 crore towards this end, it finds no overt mention in the PLI. It is not clear whether charging qualifies as OEM or component activity. Perhaps, power sector players need to be roped in. Batteries need to be standardised so that they can be swapped. There is no mention of tech transfer in component manufacture, with assembling being incentivised. While large players are investing in hydrogen and nitrogen applications, India should keep all options open. Some fine-tuning in an otherwise positive scheme should set India on the road to green mobility.

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