The government needs to establish a long-term, stable and mutually agreed technology and regulatory roadmap to encourage localisation in the automotive industry, reduce imports and scale up exports, industry stakeholders said at a consultation session on Production-Linked Incentive Scheme organised by the Department for Promotion of Industry and Internal Trade.

The leapfrog to BS-VI emission standards resulted in an increase in import content. If the government were to lay down a regulatory roadmap, which allows manufacturers time to localise the requisite components and technology, it would enable the industry to cut down on imports, CII – Manufacturing Council chairman Baba Kalyani and Society of Indian Automobile Manufacturers president Kenichi Ayukawa said in a presentation on Friday.

India skipped a stage and mandated vehicle makers to migrate from BS-IV to BS-VI standards in three years. The deadline for the switch-over was April 1, 2020.

The government needs to look at incentivising enhanced domestic value-addition to leverage the large imports substitution ($25 billion) opportunity that exists in the sector, said Kalyani, who is also the chairman at Bharat Forge, whose businesses include automobile components. To this effect, the government needs to consider incentivising technology development, research and development and innovation through the PLI Scheme, he said.

Large multinational auto component makers need to be incentivised to establish their mother plants and sourcing hubs in India so that the country becomes an integral part of their global value chains, he said. Indian auto and component manufacturers too should be encouraged to develop scale. However, Kalyani cautioned that the PLI Scheme should not cannibalise existing exporters while incentivising new players.

“MSMEs are the backbone of the entire automotive value chain; scheme should incentivise their competitiveness and enhance technology development; eligibility criterion of this scheme could be moderated to allow a larger set of players to benefit in accordance with the ACMA (Automotive Component Manufacturers Association) recommendation,” Kalyani said in his presentation.

He said the base year for eligibility should be fiscal 2020 instead of FY19 as currently envisaged.

Ayukawa, who is also the managing director at Maruti Suzuki, while conceding that the PLI Scheme is required for the Indian auto as well as component industry as it is not sufficiently globally competitive, said the reasons and areas causing non-competitiveness including higher costs and lack of technology need to be identified quickly. Component manufacturing MNCs, he said, will shift to India if manufacturing here becomes more competitive.

In his presentation, Ayukawa said, “Component exports are presently under 1.5% of global trade. The target of increasing exports by three times can be achieved if MNCs shift to India and Indian companies become competitive and are able to develop appropriate technology.”

He said given that the automotive industry is very sensitive to volumes, sustained high growth of domestic demand will help increase competitiveness and attract MNC investment.

In November 2020, the central government had approved a financial outlay of Rs 145,980 crore for enhancing manufacturing capabilities and exports in 10 identified sectors. The highest allocation — amounting to 39% of the overall outlay — has been made to the auto and auto component sectors. The Department of Heavy Industries, the implementing ministry for the plan, is expected to shortly detail the eligibility criteria to identify “scalable champions” on the metrics of turnover, exports, and growth history. Companies meeting the criteria will be eligible for incentives intended to boost local factory output and exports.

Auto industry stakeholders said they are eagerly awaiting the details of the policy.

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