Indian EV industry squeezed of government funding

Why $3 billion set aside for India’s EV makers is sitting idle

India’s Ministry of Heavy Industries (MHI) has failed to disburse any funds from the US$3 billion production-linked incentive (PLI) scheme for the automobile and auto components industry, which was implemented in April 2022. The scheme was designed to support the production of advanced automotive technology products, with applications approved if companies met the criteria for revenue or net worth, ability to invest and business plans. However, none of the approved applicants have yet received domestic value addition (DVA) certification, meaning that disbursements will be held over for the first year of the scheme. The testing agencies are yet to receive the method for ascertaining DVA from the ministry.

Key points:

The PLI scheme was designed to boost local manufacturing and increase local sourcing of raw materials, mandating 50% domestic value addition (DVA) in products.
None of the approved applicants have yet received DVA certification, so there have been no disbursements in the first year of the scheme.
The ministry’s four testing agencies have yet to receive the method for ascertaining DVA from the ministry, leaving auto majors in limbo.
Auto majors claim that they have not received DVA certification due to a lack of standard operating procedures (SOPs), which are required for product approval.
Over 10 original-equipment manufacturers (OEM) applied for DVA certification, but their applications were rejected due to a lack of the required documents.
The PLI scheme’s future is uncertain due to the lack of procedures to measure DVA and pre-existing structural issues.
The scheme was meant to support the production of advanced automotive technology products, such as certain vehicle components, battery electric vehicles (BEV) and hydrogen-fuel-cell vehicles.
The PLI scheme for automobiles was intended to mirror the success of the production-linked incentive scheme for electronics.

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India’s push towards a greener future has put the spotlight on electric vehicles (EVs) in the country. The government has been offering subsidies to boost the uptake of EVs, but there have been reports of misuse of these funds, leading to the withholding of subsidies. This has left EV manufacturers struggling to keep up with the demand for their products.

In April 2022, the Indian government announced a production-linked incentive (PLI) scheme for the automobile and auto components industry, budgeted at Rs 25,938 crore (~US$3 billion). The scheme was designed to support the production of advanced automotive technology products, including certain vehicle components, battery electric vehicles (BEV), and hydrogen-fuel-cell vehicles. It aimed to boost local manufacturing and increase local sourcing of raw materials.

However, there have been delays in disbursing funds as none of the approved applicants have received domestic value addition (DVA) certifications. Over 10 original-equipment manufacturers (OEM) applied for DVA certification, but their applications were rejected due to a lack of required documents. The testing agencies have not received the method for ascertaining DVA from the ministry. Without resolving the ambiguities around incentives, the future of the PLI scheme for the automobile and auto components industry remains uncertain.

In addition to this, there have been reports of misuse of government subsidies for EVs, leading to the withholding of these funds. A report by the Indian Express in 2021 found that several state governments in India were struggling to verify the claims made by EV manufacturers and dealerships regarding the sale of EVs. There were also concerns that some dealerships were taking advantage of the subsidies by selling EVs without proper documentation.

The government has taken steps to address these issues. In September 2021, the Ministry of Heavy Industries and Public Enterprises issued a notice stating that subsidies would be withheld if the claims made by EV manufacturers and dealerships were found to be false. The notice also stated that any entity found to be misusing the subsidies would be blacklisted from future schemes.

While this has helped to curb the misuse of subsidies, it has also left many EV manufacturers struggling to keep up with the demand for their products. The subsidies were seen as a lifeline for many small and medium-sized EV manufacturers in India, who were already facing stiff competition from larger, established players.

The withholding of subsidies has also had a knock-on effect on the supply chain for EV manufacturers. The shortage of funds has made it difficult for these companies to secure the necessary components and raw materials needed to produce their products. This has led to delays in production and delivery, frustrating both manufacturers and consumers.

Despite these challenges, some EV manufacturers in India are still optimistic about the future of the industry. In an interview with Indianewsco, Vimal Geethanandan, the founder and CEO of electric scooter startup EzeeBikeGo, said that he believed the industry was still in its early stages and that there was plenty of room for growth.

Geethanandan also stressed the importance of innovation in the industry, saying that companies needed to develop new technologies and business models to stay ahead of the competition. He cited EzeeeBikeGo's unique business model, which allows individuals to rent out their personal electric scooters, as an example of this kind of innovation.

In conclusion, the withholding of government subsidies due to rampant misuse has left many EV manufacturers in India struggling to keep up with the demand for their products. The shortage of funds has made it difficult for these companies to secure the necessary components and raw materials needed to produce their products, leading to delays in production and delivery. While the government has taken steps to address the misuse of subsidies, there is still uncertainty around the future of the industry. However, some EV manufacturers are still optimistic about the future.