Auto sector contributes 6.40% to the GDP of India and provides employment to 19 million people directly or indirectly hence is a very important sector. By 2026 it is expected to be third largest in terms of volume, at present it is the largest tractor manufacturer second largest bus manufacturer and third largest heavy trucks manufacturer in the world.
In order to accelerate manufacturing and enhance its Global reach the Indian government has allocated huge amount of INR 57,042 crore to the automobiles in auto components. As the Government of India intends to make the country environment-friendly and slowly phase out petrol diesel-based vehicles the PLI scheme for auto sector is interlinked with the scheme for Advanced Chemistry Cell (ACC) battery storage. It will help in reducing the cost of manufacturing electric vehicles which will in turn makes them affordable for a large section of the population. India’s EV market is estimated to be at INR 50,000 crore by 2025.
Government is in the stage of analysing the scheme however as per the information available in public domain there is likely to be an eligibility criterion for companies for the availing the incentives. There would be four plans and any company would be eligible to apply for a maximum of three schemes from these.
Sourcing incentive scheme This scheme intends to incentivize international purchase offices for component Sourcing. Global and Indian OEMs should set up a subsidiary in India exclusively for sourcing. Estimated allocation under this scheme is INR 7,210 crore.
Champions OEM incentive scheme: Estimated allocation for this scheme is INR 18,075 crore and incentives would be based on sales of Original Equipment Manufacturer.
Logistics cost incentive scheme: This scheme would provide sales-based incentive to offset logistics costs and outlay anticipated under this scheme in is INR 23,628 crore.
Component champion incentive scheme: This scheme would provide incentive to auto component manufacturers based on their incremental sales. This scheme is estimated to have an out lay of INR 8129 crore.
In this scheme maximum incentive is expected to be limited to INR 8556 crore and rate of incentive may range from 2 to 12% of incremental sales.
Under the Automotive Champions scheme a company would qualify if it meets the following three criteria:-
i) Revenue of INR 1,000 crore (INR 100 crore for component makers) from Overseas operations
ii) INR 10,000 crore overall revenue (INR 500 Crore for component makers)
iii) Investment in Fixed Assets INR 3,000 crore (INR 150 crore for component makers)
Under the scheme it is anticipated that for availing the lowest cashback of 2% a company must have a minimum incremental sales of INR 75 crore and for availing 12%, incremental sales should be more than INR 1,000 crore.
The government is expecting additional sales in the automotive sector and MSME sector. It is also envisaging additional investments with increase in employment and incremental GST and Direct tax collections.
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The author is a practicing Chartered Accountant, Senior Partner in Kohli Chitkara & Co. LLP and can be contacted at sandeep@kcccas.com. Any comments or queries are welcome.
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