By Avik Chattopadhyay
‘Fait accompli’ – a French phrase commonly used to describe an action which is completed before those affected by it are in a position to query or reverse it.
Literally, the phrase translates as “accomplished fact”, something that has already happened and is thus unlikely to be reversed… a done deal. The pessimists might also call this the ‘point of no return’.
The auto PLI (Policy Linked Insurance scheme) announced on September 15, 2021 is a specific move by the government to spur activity in the Indian automobile industry. Till now most of the policy maker action was of the “push” type using a mix of sweet talk and threats to move to green mobility solutions. This is a “pull” action, hoping that the automotive world will look at India as a manufacturing base for new world mobility, specifically electric and hydrogen.
Given the slightly diminished ‘love’ for China and an impending financial implosion and power supply collapse in that country, India can surely be a more viable base, market and source. With most European automakers operating on crutches and the American ones calling it a day, the market has been left to the Japanese and Koreans to make more hay. Surely the US and the European Union would not like this to slip away totally, therefore the Auto PLI gives them one more chance to reaffirm their faith in India.
After going through all the (obvious) industry platitudes and number crunching over the last 15 days on the auto PLI, I am faced with 15 specific questions that I raise on this platform. Answers and clarifications from any corner are most welcome.
1.The total outlay is INR 25,938 crore – how was this specific number arrived at instead of a rounded off amount? Seems the government did a detailed study of 15 OEMs and 75 component makers and items that qualified to be certified as ATT (Advanced Automotive Technology) to arrive at the magical number. Certainly worth a full debate session on national television!
2.Initial outlay was INR 59,000 crore. Does the drastic drop mean that roughly 50% of the budget was kept aside for ‘old’ ICE technology in the initial plan?
3.Now that the Union Minister Shri Gadkari has instructed (he never requests, only commands) the industry to produce flex-fuel engines ASAP, will they not be incentivised?
4.One of the key objectives of the policy is to “attract large- scale investment”. Tesla invests close to USD 5 billion for one giga factory that caters to about 500,000 vehicles. With a total government outlay of USD 3.56 billion, will it attract the scale required?
5.Are there any “not allowed” countries, or is everybody welcome? Am sure you understand what I am hinting at.
6.As the incentives are for both the automakers and the component makers, is there any split in the allocated budgets for both? If lots of automakers come in and mop up all the money, what will the component makers be left with? Will there be a fresh allocation?
7.Why the preferential incentive for automakers over component makers by incentives of 13%-18% versus 8%-13% on net incremental sales? Is that not literally putting the car(t) before the horse?
8.Given that the country desperately needs more public mobility, why is there no specific incentive for manufacturing buses of all sizes and micro people carriers?
9.As per the announcement, the target sectors are battery electric vehicles and hydrogen fuel cell vehicles in all segments. In a webinar on ETAuto the Secretary of Heavy Industries Arun Goel clearly stated that all new technologies are eligible for the incentive and not only electric and hydrogen. If that is the case, has the government already watered its firm stand on eligibility based on some pressure lobbies in the industry?
10.The outlay kicks in from 2022-23. In FY 2021-22 only the financial attributes shall be considered for eligibility criteria. Does that mean that projects actually starting in 2021-22 will not get any incentive?
11.There are now three schemes that will operate together – Auto PLI, FAME (INR10,000 crore) and ACC (Advanced Cell Chemistry) (INR18,100 crore). The first focuses on manufacturing, the second on sales and the third on research. Will the incentives availed by various organisations under these schemes keep passing off the benefits to the customer? Or will the situation be just like the present times when automakers continue to garner all sops and incentives under the pretext of rising input costs?
12.If additional employment of 750,000 people is a desired outcome, will ensuring a certain level of employment be mandated? Given that these are all “new” technologies, will this clash with the obvious need for increased robotics and automation?
13.This scheme is for manufacturing. What about the scheme for R&D behind the manufacturing? Apart from the ACC scheme, why not a specific incentive plan to encourage the biggest R&D firms to set up operations in India and employ high-quality manpower? Would we like to continue the ‘royalty raj’ into new technology too? Would we not envision Indians inventing new technologies and solutions in the field of electric and hydrogen-powered mobility?
14.On the same note, how about incentivising “Design” as a critical function and input?
15.The incentive payouts keep increasing year-on-year from a measly INR 604 crore in year-1 to a massive INR 9,060 crore in year-5. To my limited understanding of how such incentive programmes work, they typically maximise in years 3 and 4 before tapering off in the last 1-2 years. This makes businesses plan investments and growth in a quicker cycle than have that conventional wait-and-watch approach. New age technologies have shorter go-to-market gestation periods than conventional businesses. Should the incentive distribution not have been tweaked accordingly?
Is the Auto PLI just yet another ‘fait accompli’ as we have seen with many programmes over the years, or will the industry actually bite this bait?
Over to you…
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