New Delhi: The Ministry of Heavy Industries (MHI) plans to reduce the budgetary allocation for ₹25,938 crore PLI-Auto scheme for FY26 to ₹2,000 crore as it has received claims for manufacturers of around that amount this year, according to two people familiar with the development. MHI is in the process of budget consultations with the Ministry of Finance.
The allocation for the scheme was slightly exceeded ₹2,800 crore for FY26.
Launched in 2021, the program aims to provide manufacturing incentives for companies making zero-emission vehicles or components, representing one of the biggest policy drivers for India’s emerging electric vehicle (EV) ecosystem. This includes zero-emission models of all vehicle segments.
“The budget allocation was about ₹2,800 crore for this fiscal year. During negotiations with the Ministry of Finance, MHI demanded a reduction of the allocation to approx ₹2000 million, maybe around ₹2.030-2.050 million. Now that the claims from the manufacturers have come in, the picture is clearer,” said the first quoted above on condition of anonymity.
Key things
- MHI plans to cut the FY26 budget for the PLI-Auto scheme by about ₹800 crore, from ₹2,800 crore to about ₹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 biggest applicants for sops in FY26 based on previous fiscal year sales.
- After a modest first year of disbursement, the plan is set for a significant expansion in its second year, estimated to reach the ₹2,000 crore mark.
- A central challenge for companies remains the high eligibility threshold, which requires 50% domestic value added, a hurdle compounded by global supply chain issues such as shortages of rare earth magnets.
- The expected increase in incentive payouts is expected to positively impact the financial viability of EV manufacturers’ businesses by improving their profit margins.
Domestic electric vehicle manufacturers Tata Motors Ltd (for both passenger and commercial vehicles) claim this. ₹400 million crowns and Mahindra & Mahindra Ltd ₹280 crore in FY26, on the sales it made in the previous fiscal, the first person added.
This was said by Union Heavy Industries and Steel Minister HD Kumaraswamy in June Mint in an email interview that the government expected to be paid ₹2,000 crore to nine companies under the PLI-Auto scheme in FY26.
Email queries to the Ministry of Heavy Industries, the Finance Ministry, Tata Motors and Mahindra & Mahindra dated November 14 remained unanswered.
Five-year scheme
This will be the second year that the government is disbursing Production Linked Incentives (PLI) under the scheme. Last year the government paid out ₹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, car manufacturers and aftermarket manufacturers who have been declared eligible under the scheme as ‘OEM Champions’ and ‘Component Champions’ can apply for incentives to sell approved models. They receive approximately 13-18% of the value of their incremental sales as incentives.
Read also | India-made 40nm chip to power smart meters by June
Of the 82 companies – including vehicle and component manufacturers – shortlisted for PLI under the scheme, only 18 have been approved for these incentives.
The government provides incentives in a fiscal year for sales in the previous year according to program guidelines.
The base year for the scheme is FY20. This means that if a company sells products worth ₹100 in FY20 and worth it ₹200 in FY24, the first year for which sales have been counted, then he can receive 13-18% incremental return, or ₹100 that the company generated.
Each receiving company can apply a maximum of approx ₹6,400 crore as incentives, which is 25% of the total expenditure of the scheme.
The main problem for companies to be eligible for incentives under this scheme is the high localization threshold. The system guarantees that 50% of the domestic value added (DVA) of a product must be domestic.
Read also | Ministry seeks to shift allocation of ₹4,891 crore for e-trucks and e-buses to FY27
In addition, the shortage of rare earth magnets this fiscal year, due to China’s export controls, has forced Indian automakers to seek exemptions from localization clauses under national schemes to promote electric mobility, including the PLI-Auto scheme.
The scheme is designed to build a robust electric car supply chain in the country, as China’s dominance of global supply chains has illustrated the extent of disruption the world’s second-largest economy can cause.
The increase signals that the Production Linked Incentive (PLI) framework for the automotive and advanced chemical cell (ACC) ecosystem is now moving from the approval stage to the serious claims and disbursement stage, said Randheer Singh, former director of electric mobility at NITI Aayog and current CEO of ForeSee Advisors, a private consultancy.
“When we were working on the design of the scheme in government, the intent was very clear: PLI incentives will only become meaningful when OEMs achieve real domestic value addition and incremental manufacturing. The first year included the necessary groundwork – component validation, supply chain linkages and compliance structures,” he said.
Singh also explained that PLIs can improve the return (in terms of internal rate of return) of any advanced mobility project by around 200-350 basis points, a significant increase for a capital-intensive and technology-intensive sector.
Read also | Sales of electric tractors are barely developing, even with state volcanoes
