PLI scheme in auto industry to create 7.5 lakh jobs

PLI scheme

Indian Market
by 5paisa Research Team Last Updated: 2022-08-08T19:01:33+05:30

With the launch of the production linked incentive scheme for the auto industry, there has been a lot of speculation about its overall impact on job creation. Now, there is some clarity that the PLI scheme for auto sector alone could catalyse the creation of an additional 7.50 lakh jobs in India directly and the indirect impact would be much larger and far reaching. The government announced and rolled out the PLI scheme for auto sector in Sep-21.

The PLI scheme has been typically rolled out for products where India has a competitive advantage in producing locally. PLI is based on output and will not only encourage domestic self-sufficiency but will also have huge spill over benefits. For instance, apart from creating 7.50 lakh jobs, the PLI scheme for automobiles and auto components sector would also result in incremental production worth Rs.231,500 crore over next 5 years.

To begin with, the government has already approved major auto players in India Champion Original Equipment Manufacturers (OEM) Incentives scheme. Some of the auto companies that are the beneficiaries in the first round of incentives are Ford India, Tata Motors, Suzuki, Hyundai, Kia and Mahindra & Mahindra. In all, a total of 20 automobile and auto component companies will be eligible to receive incentives under Production Linked Incentives Scheme.

The government had a target to catalyse investments worth Rs.25,938 crore but the 20 companies above have already committed investments of more than Rs.45,000 crore. This is likely to translate into incremental production worth Rs.231,500 crore as well as 7.50 lakh additional jobs in India. This is an important milestone for India as it aggressively proceeds towards its broader vision of Atma Nirbhar Bharat or Self Sufficient India.

The government has also clarified that the PLI scheme will only be available as incentives for the companies that make products which are presently not being manufactured in India. In other words, this can also be restated by saying that the PLI scheme will save equivalent imports of Rs.231,500 crore, which would have otherwise been necessary in the India context. Hence the PLI scheme also reduces the pressure on the forex reserve position.

The emphasis of the PLI scheme is “Make in India”, so to qualify for the PLI benefits, not less than 50% of the value addition must be implemented domestically in India. Companies will have to go up to Tier 3, which includes the micro, small and medium enterprises or the MSME sector for short. This scheme will not be applicable for companies that import knocked-down cars into India and assemble them here as 50% has to be produced locally.

In addition, the PLI scheme also extends to the manufacturers of two-wheelers and the government has already selected Bajaj Auto, Hero MotoCorp, Piaggio and TVS Motor as eligible candidates to avail this PLI scheme. Some firms have also been included under the non-automotive OEM category like Axis Clean Mobility, Booma Innovative Transport Solutions, Hop Electric Manufacturing, Ola Electric Technologies etc.

The PLI scheme offers incentives of up to 18% to encourage the industry to make fresh investments in indigenous supply chain of advanced automotive technology products. The idea is to give a big boost to environmentally sustainable and cleaner EV based systems. Till date, a total of 115 companies had filed applications under the PLI scheme for automobile and auto component industry.

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