FCC

Auto firms challenge PLI's local value addition calculation

2023-08-11

Automakers participating in the Rs 259.38 billion production-linked incentive (PLI) programme are encountering difficulties in the calculation of local value addition, impeding their acquisition of compliance certificates. The PLI scheme, active since April 2022, aims to stimulate domestic manufacturing of advanced automotive products, particularly electric vehicles (EVs). However, the current formula for calculating domestic value addition (DVA) relies on ex-factory vehicle prices rather than production costs, affecting companies that offer discounted vehicles below production expenses.

The DVA requirement mandates a minimum 50% domestic value addition for eligibility for scheme incentives. As EV manufacturers often sell vehicles at a loss to remain competitive and attract consumers, they argue that the ex-factory cost would better reflect local value addition. The Society of Indian Automotive Manufacturers (SIAM) has petitioned for an adjusted formula, citing that the ex-factory price-based calculation understates real local value added.

Furthermore, auto companies seek an exemption on the costs of imported components like rare-earth magnets and semiconductors, which are crucial for EV production but not yet manufactured in India. While such exemptions have been granted to component makers, OEMs contend that their absence hampers in-house manufacturing of essential parts. The call for a fairer DVA calculation and broader exemptions highlights the challenges and nuances in fostering local EV production through PLI.