India can capitalise on plans announced by multinational corporations to become an integrated manufacturing hub for automotive global supply chains, senior government officials and industry said a day after the government approved the Rs. 260 billion (US$ 3.5 billion) production-linked incentive (PLI) scheme to promote the transition to advanced technologies.

The scheme, approved on September 15th, is aimed at helping to hasten the move to electric and hydrogen fuel cell vehicles, which are expected to become popular in the coming years.

"In the last six months, many multinational corporations have announced plans to diversify their supply chains and invest in advanced automotive technologies. Now is the right time (to launch the PLI scheme) to get those investments to India," said Arun Goel, secretary, Department of Heavy Industries.

He said the PLI scheme for the automobile sector, along with manufacturing advanced chemistry cells (Rs. 181 billion), announced earlier, and subsidies under the Faster Adoption and Manufacturing of Electric Vehicles in India (FAME) II initiative worth Rs. 100 billion, will make India attractive for setting up production hubs for advanced automotive technologies.

At present, the share of advanced automotive technologies in the local automobile industry stands at around 3%, compared to 18% prevalent globally. The percentage of advanced auto technologies is projected to increase up to 30% by 2030.

Advanced automotive technologies in the country currently face cost disabilities in the range of 15-30% due to the technology gap, lack of local supplier base and economies of scale. The PLI scheme will enable the industry to focus on developing higher value, higher technology products to transition to connected, clean vehicles to reduce dependence on imports and integrate with the global supply chain.

The Indian automotive industry had skipped a stage to leapfrog to BS-VI emission norms last year but did not receive any support from the government at the time. While the PLI scheme does not "disincentivise" past investments, it underscores the Centre's focus on reducing crude oil imports and promoting green mobility.

"The scheme will contribute towards reducing carbon emissions and oil imports with local manufacturing," said Kenichi Ayukawa, president, Society of Indian Automobile Manufacturers, adding that the industry will work with the government for fine-tuning and executing the scheme.

A senior government official said India ranks 11th in the world in value terms, although it is the largest producer of two-wheelers, three-wheelers and tractors globally, and the fifth largest manufacturer of passenger and commercial vehicles. The PLI scheme is expected to help the industry successfully manufacture advanced auto tech products and evolve beyond mass-market low-value low tech ones. An additional focus area under the scheme is to deepen localisation and reduce imports.

Vikram Kirloskar, vice-chairman, Toyota Kirloskar Motor, said the PLI scheme will provide the required impetus for manufacturing in India. The incentive scheme will reduce imports and enable the Indian automotive industry to move up the value chain into higher value-added technologies. "It will help attract global investments as several automotive players are looking to diversify their supply chains owing to the pandemic and emerging geopolitical scenarios," he said.

The incentives offered over five years seek to attract more than Rs. 425 billion investment. The government expects this to generate Rs. 2.3 trillion of incremental production and 760,000 jobs. "PLI has the potential to increase volumes substantially and will provide a huge opportunity for exports to grow," said Vipin Sondhi, managing director, Ashok Leyland.