Auto firms can start claiming PLI benefits, but there's a catch…

The Indian government has released the final standard operating procedure (SOP) for automobile companies to file claims under the production-linked incentive (PLI) scheme, almost three years after it was first notified in September 2021, Mint has learnt.

And yet, many auto companies are unlikely to get any of the benefits from the already-much-delayed scheme this year.

The Industrial Finance Corporation of India, which is the project management agency, released the claims SOP on Thursday, outlining the procedures and requirements that eligible applicants must follow to claim the incentives provided by the government. Mint has reviewed a copy of the document.

The SOP, released after nearly year-long consultations, will enable automobile manufacturers such as Tata Motors, Mahindra & Mahindra, Bajaj Auto and Ola Electric, as well as component suppliers including Sona Comstar, to start claiming the incentives.

The scheme is meant for vehicles in the advanced automotive technologies category, which includes electric vehicles and EV parts.

But there’s a catch. The cash incentives are expected to start coming through only in the beginning of FY26. According to the SOP, claims have to be filed annually for the previous year. However, many companies received their certifications only towards the end of FY24, so they can file claims only from FY25.

'Race against time'

Bajaj Auto, though, has already started to account for the benefits it expects to receive from the PLI scheme, having obtained certification for five products (each variant requires a separate certification) in March 2024. The company is in compliance with the requirements and accounted for a little less than ₹100 crore of PLI incentives in the June quarter.

Although companies such as Tata Motors and M&M obtained PLI approvals in July last year, filing claims for the past fiscal before the September 30 deadline will be an onerous task, industry executives said, citing the multiple layers of compliance norms required to meet all the criteria.

"Applicants have only two months' time to get chartered engineer certifications, statutory auditor certifications, senior management approvals, declarations from vendors at whose locations assets have been deployed, cost auditor certifications where applicable and multiple more compliances. It is a race against time," an industry executive told Mint on condition of anonymity.

Moreover, companies will not be able to claim incentives for sales that took place for the period from when they filed their applications to the day they obtained the certificates, which, in many cases, goes up to six months.

Tata Motors and M&M have not shared any estimates of the amount of incentives they will account for in FY24 and FY25. Now with the SOP in place, they are likely to start accounting for the expected incentives.

"An SOP in line with the drafts shared with the industry, as part of the consultation process, would have been more in line with the ease of doing business. We were expecting to see the SOP earlier because the compliance burden on us has increased," another industry executive told Mint.

Also read: Govt to start giving PLI incentives for auto cos in FY25

Tata Motors has got domestic value add (DVA) approval for several products, including its Tiago EV, its Ace EV mini-truck, and the electric Starbus. For M&M, several of its electric three-wheelers in the cargo and passenger categories have been approved.

Other companies cleared for the scheme include Ola Electric, TVS Motor Company, Toyota Kirloskar Auto Parts and Delphi-TVS Technologies.

Budgetary allocation

Some analysts said the amount the government has set aside for the scheme may not cover all the claims.

According to Nomura, even with a conservative estimate of EV adoption in India, PLI claims by auto companies and component makers are likely to far exceed the government’s budgetary allocation for the scheme. The government has allocated ₹604 crore for disbursement in FY25 (for claims made for FY24) and ₹3,150 crore in FY26 (for claims made for FY25), out of the total five-year outlay of about ₹26,000 crore.

“Our analysis indicates that even on a conservative estimate of EV penetration touching ~6% and 9% for passenger vehicles and two-wheelers by FY28, the PLI budget may cover about 60% of the PLI claims," Nomura said in a report. “Falling battery prices and no changes in taxation/incentives could lead to higher penetration as well. The actual benefit is likely to be lower than 60% as we have not considered claims on exports… Given that the benefit is likely to get paid out on pro-rata basis, it may be prudent to not assume more than 50% of eligible incentives. Thus, business plans need to stay focused on fundamentals such as strong product offering and cost leadership rather than pricing."

Auto component makers still have a long way to go before they can receive the incentives—which, according to the scheme, range from 13-18% of the incremental sales revenue of each EV part (and 8-13% for non-EV parts). Claims for sales in a certain fiscal year, according to the scheme, will be disbursed the following fiscal, Mint reported in February. 

Also Read: Auto parts makers get closer to PLI payouts

For Sona Comstar, the first auto component maker to get DVA certification by the Global Automotive Research Centre on 19 February, half a dozen more products are in the approval process. These include mid-mount traction motors, motor controllers, e-differential assembly and electronic differential lock.

Sona Comstar expects to meet the sales threshold for unlocking incentives amounting to 11% of incremental sales over FY20 levels, but because the total aggregate claims are not known, the company cannot quantify the actual payout it expects to receive.

“We plan to utilise the PLI incentives to enhance our competitive moat," said Vivek Vikram Singh, chief executive officer of Sona Comstar. “We export a considerable part of our production, so the incentives will work to make us more competitive vis-à-vis foreign manufacturers, and against both domestic and foreign manufacturers in the domestic market. We aren’t going to base our business model solely on the expectations of PLI payouts."

Nomura said most auto companies will likely use the PLI scheme to expand the market rather than improve margins. It expects Tata Motors, M&M, Sona Comstar and Uno Minda to be the biggest beneficiaries of the scheme.

Tata Motors said on its Q3FY24 earnings call that it is banking more on PLI incentives than external fundraising to fund the growth of its EV business.