New Delhi: The ministry of heavy industries (MHI) plans to reduce the budgetary allocation for the ₹25,938-crore PLI-Auto scheme for FY26 to ₹2,000 crore, as it has received claims for manufacturers for roughly that amount this year, according to two people aware of the development. MHI is in the process of budgetary consultations with the finance ministry.
The allocation for the scheme was a little over ₹2,800 crore for FY26.
The scheme was launched in 2021 to provide manufacturing incentives for companies making zero-emission vehicles or their components, marking one of the biggest policy drivers for India’s emerging electric vehicle (EV) ecosystem. This includes zero-emission models of all vehicle segments.
“The budgetary allocation was about ₹2,800 crore for this fiscal year. In discussions with the finance ministry, MHI has requested that the allocation be lowered to about ₹2,000 crore, maybe about ₹2,030-2,050 crore. Now that claims have come in from manufacturers, the picture is clearer,” said the first person cited above, on the condition of anonymity.
Key Takeaways
- MHI is planning to cut the FY26 budget for the PLI-Auto scheme by about ₹800 crore, from ₹2,800 crore to roughly ₹2,000 crore, based on a clearer picture of claims filed by manufacturers.
- Domestic EV majors like Tata Motors and Mahindra & Mahindra are among the largest claimants for sops in FY26, based on sales from the previous fiscal year.
- Following a modest first year of disbursal, the scheme is set for a significant scale-up in its second year, projected to hit the ₹2,000 crore mark.
- The central challenge for companies remains the high threshold for eligibility, which mandates 50% domestic value addition, a hurdle exacerbated by global supply chain issues like the rare earth magnet shortage.
- The anticipated increase in incentive disbursal is expected to positively impact the financial viability of automakers’ EV businesses by improving their profit margins.
Homegrown electric vehicle makers Tata Motors Ltd (both passenger vehicle and commercial vehicle verticals) has claimed about ₹400 crore, and Mahindra & Mahindra Ltd has sought about ₹280 crore in FY26, for sales it made in the previous fiscal, the first person added.
In June, Union heavy industries and steel minister H.D. Kumaraswamy told Mint in an email interview that the government expected to disburse about ₹2,000 crore in sops to nine companies under the PLI-Auto scheme in FY26.
Email queries to the heavy industries ministry, the finance ministry, Tata Motors, and Mahindra & Mahindra on 14 November remained unanswered.
Five-year scheme
This will be the government’s second year of disbursing production linked incentive (PLIs) under this scheme. Last year, the government disbursed ₹322 crore under the PLI-Auto scheme to four companies—Tata Motors, Mahindra & Mahindra, Ola Electric, and Toyota Kirloskar Auto Parts.
The scheme will run for five years, till FY29. Under the scheme, automakers and spare parts makers which have been declared eligible under the scheme as ‘Champion OEMs’ and ‘Component Champions’ can claim incentives for sales of approved models. They receive approximately 13-18% of the value of their incremental sales as incentives.
Out of the 82 companies—including both vehicle makers and component makers—shortlisted for PLIs under this scheme, only 18 have received approval for these incentives.
The government provides incentives in a fiscal year for sales in the previous year, as per the scheme’s guidelines.
The base year for the scheme is FY20. That means if a company sells products worth ₹100 in FY20 and worth ₹200 in FY24, the first year for which sales were counted, then it can receive 13-18% of the incremental revenue, or ₹100, which the company generated.
Each beneficiary company can claim a maximum of approximately ₹6,400 crore as incentives, which is 25% of the scheme’s total outlay.
The primary challenge for companies to be eligible for incentives under this scheme is the high threshold of localisation. The scheme warrants that 50% of the domestic value addition (DVA) of the product must be indigenous.
Additionally, the rare earth magnet shortfall this fiscal year, due to China’s export control, forced Indian automakers to seek exemptions to localisation clauses under the country’s schemes to promote electric mobility, including the PLI-Auto scheme.
The scheme is designed to build a robust EV supply chain within the country, as China’s dominance over global supply chains has illustrated the scale of disruption that the world’s second-largest economy can cause.
The step-up signals that the Production Linked Incentive (PLI) framework for the automobile and advanced chemistry cell (ACC) ecosystem is now moving from an approvals phase to a serious claims and disbursal phase, said Randheer Singh, former director of electric mobility at the NITI Aayog and current CEO of ForeSee Advisors, a private consultancy.
“When we were working on the scheme design in government, the intent was very clear: the PLI incentives become meaningful only when OEMs achieve actual domestic value addition and incremental production. The first year involved necessary groundwork—validation of components, supply-chain linkages, and compliance structures,” he said.
Singh also explained that PLIs can improve returns on each advanced mobility project (in terms of internal rate of return) by about 200-350 basis points, a significant boost for the high-capex, technology-intensive sector.
MHI, PLI-Auto scheme, budgetary allocation, electric vehicle, homegrown automakers
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