Tough to calculate local value-add, say auto PLI applicants to government

Multiple companies that have qualified for the government's Rs 25,938-crore production-linked incentives (PLI) scheme for the automotive industry have approached the government stating that they were facing difficulties computing the domestic value addition (DVA) in their products beyond their immediate suppliers, a top government official said.

However, the Ministry of Heavy Industries, which is implementing the PLI scheme for the automotive industry, has asked the PLI applicants to develop a robust methodology for calculating the DVA across their supply chain, Hanif Qureshi, joint secretary, Ministry of Heavy Industries told ET.

Companies may enlist the assistance of IFCI Limited if required for coming up with a methodology to compute DVA, he said. IFCI, a government-backed non-banking finance company, has been appointed as the project management agency for the PLI scheme for automobile and auto component industry.

“The purpose of the PLI scheme is to boost domestic value addition,” said Qureshi. “So, companies will have to calculate their DVA.”

The indirect suppliers of automotive companies, who are vendors or sub-vendors to the direct (tier 1) suppliers, are often small, unorganised units and it is difficult to capture the value addition data, according to industry executives.

However, auto companies and component makers are required to calculate and present the DVA across their supply chain to avail sops under the PLI scheme.

Companies must add at least 50% of the value of the product locally to avail the sops. This includes local manufacturing as well as using locally sourced sub-components.

The focus on analysis of DVA comes after the government found alleged wrongdoing by multiple electric vehicle (EV) makers in claiming subsidies in another scheme meant for promoting the adoption of EVs in the country.

These EV makers allegedly claimed subsidies despite relying on imported components, as against the mandate of localisation per the Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (FAME India II) scheme. Some companies also allegedly routed imports through domestically registered firms to wrongfully declare local sourcing.

To make it easier to capture the DVA in the PLI scheme, the ministry had launched an automated online data transfer system in August 2022 for automatically capturing critical DVA data from the applicant’s Enterprise Resource Planning (ERP) system. ERP is a type of software that organisations use to manage their business activities.

Instead of the applicants manually filing large volumes of data, this facility will make the process automated while also ensuring that the non-disclosure agreements of automakers are protected.

The five-year PLI scheme for the automotive industry has a budgetary outlay of Rs 25,938 crore and proposes financial incentives to boost the domestic manufacturing of advanced automotive technology products and attract investments in the automotive manufacturing value chain. As many as 85 applicants have been approved for the scheme across two categories - 18 for Champion OEM (original equipment manufacturers) Incentive scheme and 67 for Component Champion Incentive scheme.