Indian Government Simplifies Process For Automakers To Receive Tax Incentives Under PLI Scheme

The government has decided to simplify the process of availing benefits under the Rs 25,929 crore production-linked incentives (PLI) scheme for automakers, by eliminating the need for complex details on localisation that were initially planned.

Auto manufacturers can claim advantages by providing particulars of sourcing and pricing for components used in their vehicles straight from Tier-1 or immediate suppliers, according to insiders.

This is a change from the initial government plan, which required data from Tier-3 suppliers or subcontractors to claim benefits.

Car and component makers had challenges gathering documentation for localisation, an essential component for PLI program support, prompting this decision.

Officials confirmed that the proposed changes will be implemented through standard operating procedures (SOPs), dictating the scheme's implementation.

The Ministry of Heavy Industries (MHI) revised the draft SOPs for the auto industry after consulting with representatives, and they are now finalized.

Local sourcing of parts is one of the requirements for Tier-1 suppliers, according to a senior government official. The directive will be included in the commitments sought from targeted beneficiaries, such as auto component and automobile makers, under the PLI scheme.

Obtaining data from tier-3 suppliers was aimed at ensuring local value generation and avoiding taxpayer funds being used for imported parts, but automakers claimed suppliers would not disclose commercially sensitive information.

Tier-1 suppliers provide the original equipment manufacturer directly, while tier-2 vendors supply the tier-1 suppliers, and so on.

Sources revealed that under new procedures, tier-1 suppliers are now required to furnish a domestic value addition (DVA) declaration when selling to automakers. The declaration is to state the proportion of domestic value added in the parts.

This replaces the practice of sharing sourcing and pricing information up to tier-3 level vendors. The DVA certification is to be carried out by a chartered accountant.

To receive scheme benefits, automakers must have their vehicles' overall DVA certified by a statutory auditor, according to sources. New SOPs are said to aid the scheme's progress, as it nears the end of the first year in its five-year term.

Instances of misconduct in Faster Adoption and Manufacturing of Electric Vehicles (FAME)-India, where some manufacturers allegedly obtained subsidies by falsifying data about localisation, have heightened the government's concerns around DVA.

20 — car, two-wheeler and three-wheeler — manufacturers and non-automotive investors are shortlisted for the PLI scheme in the automobile sector.

Additionally, around 75 component makers have also been selected.