Incentives in the works for large auto, component firms

The government is drawing up an incentive scheme for the automobiles sector aimed at doubling exports of vehicles and components in the next five years, four sources with direct knowledge of the matter said.

The Department of Heavy Industries (DHI) has sought feedback from auto industry groups on the initial proposal, which suggests giving incentives over five years to increase local production and procurement for sources said.

The incentives would be based on the sales value of vehicles or components and eligible companies would need to meet certain conditions, including a minimum revenue and profit threshold and presence in at least 10 countries, two of the sources said, adding the form the incentives would take had not been decided.

The DHI did not immediately respond to a request for comment.

The initial scheme has been designed to incentivise large companies and in turn benefit smaller export, the players in the supply chain, making the auto sector more competitive overall, one of the sources said.

To be eligible, automakers must have revenues of at least Rs 10,000 crore and an operating profit of at least Rs 1,000 crore in three of the last five years, one of the sources said, adding they must also have earnings from outside India and commit to spending on research.

The terms for auto part makers are the same except that the revenue and profit thresholds are lower, at Rs 2,000 crore and Rs 200 crore, respectively, the person said.

One proposal is to have a production-linked incentive under which companies will get benefits proportionate to the distance between the factory and point of sale to compensate for higher warehousing and logistics costs, said the source.

Another proposal is to give incentives to increase production of specific car models but only if 80 per cent of them are exported, the person said.

The move is part of the Centre’s effort to create 'champion' sectors to attract investment, generate jobs and boost manufacturing, and comes amidst calls by Prime Minister Narendra Modi to be selfreliant as a nation.

India wants to promote exports and has identified some sectors, including autos and textiles, for which incentive plans are being designed, said an official.