About 12 companies including BHEL and Kia Motors to be excluded from Auto PLI due to lag on investments

A dozen companies including state-run Bharat Heavy Electricals Ltd (Bhel) and the Indian entity of Korean automaker Kia Motors will be excluded from the production-linked incentive (PLI) scheme for automobiles and auto components, two people aware of the matter said, since these companies have made no investments under the scheme since it was launched in 2021.

Some of these companies including Kia India Pvt. Ltd have themselves shown their intent to relinquish benefits under the scheme as their initial plans for manufacturing under the scheme have not taken concrete shape, the persons said on the condition of anonymity.

Also read |  Centre to stay engaged with firms that made auto PLI cut

While Kia was enlisted as a so-called champion OEM (original equipment manufacturer), Bhel was recognized as a component champion as a new non-automotive investor for components.

"Twelve companies will be excluded from the auto PLI scheme... that's because they have not invested as per the scheme, or in some cases, they themselves want to be excluded," one of the two people said. The companies will have to forfeit bank guarantees of ₹1-2 crore each, the people added.

Queries emailed to the heavy industries ministry which operates the scheme, as well as to Bhel and Kia Motors India remained unanswered. Names of other companies which will exit the scheme could not be ascertained.

In FY24, the first year of claims, the industry had sought a mere ₹500 crore in incentives, a tepid response given that the scheme has an outlay of about ₹26,000 crore across five years.

Also read | Tata, Suzuki, M&M win auto PLI bids

"The lack of investments under the scheme may be due to a change in strategy or investment plans of the company," said Ashim Sharma, senior partner and business unit head at Nomura Research Institute (NRI) Consulting & Solutions, India. "Also, if a company needs to invest more for the requirements of the domestic market, it may not focus on exports as a share of the production in the scheme is mandated to be exported. Auto and auto components PLI have largely been successful, and if 10-12 companies out of the over 100 are left out, it's not a major sample size to be concerned about," Sharma added.

Boosting local manufacturing

The automobile PLI scheme was designed to boost local manufacturing in the auto sector, and the industry had proposed investments of over ₹75,000 crore for the same. Apart from physical assets, investments in research and development (R&D) also are eligible for incentives under the scheme.

Firms approved for PLI benefits get a portion of the determined sales value as incentives. Determined sales value refers to the difference between the sales value obtained by the company in a fiscal year and the sales value obtained by the company in the base year of the scheme.

Also read |  Why India’s auto PLI is yet to pick up after two years

Under the scheme, if an automaker has a determined sales value of under ₹2,000 crore, it will get 13% of the same as benefits. The proportion of benefits will increase as the determined sales value increases. If a component maker has a determined sales value of under ₹250 crore, it will get benefits worth 8% of this value.

"Out of 115 applications received, 82 were approved with an estimated investment of ₹42,500 crore, incremental sales of ₹2,31,500 crore, and 1.4 lakh jobs over five years. As of September 2024, ₹20,715 crore investment and ₹10,472 crore incremental sales have been achieved, with the first incentive disbursement planned for FY 2024-25," a ministry of heavy industries press release said on 19 December.

Proof required

To receive benefits, both automakers and component manufacturers have to furnish proof of investments.

Automakers need to have global revenue of at least ₹10,000 crore, while component makers need ₹500 crore. Additionally, automakers would need to invest ₹3,000 crore and component makers would need to invest ₹150 crore in fixed assets domestically.

Also read |  Govt wants to certify all automotive PLI applicants by July

For new non-automotive investors for components such as Bhel, the scheme demanded domestic investments worth at least ₹350 crore by FY25, and at least ₹500 crore by FY27.

A critical component of the PLI-Auto scheme is its criterion on domestic value addition (DVA). Products with a minimum domestic value addition of 50% are eligible for incentives. DVA refers to the share of domestically manufactured components used to produce automobiles and auto components under the PLI scheme.