PLI Scheme Revamp for Automobiles May Enhance Green Mobility Adoption: Deloitte India

Deloitte India has recommended a major restructuring of India’s Production Linked Incentive (PLI) scheme for the automobile sector, cautioning that excessively stringent eligibility norms are limiting its effectiveness in driving green mobility adoption. The consultancy points out that despite more than 200 applicants seeking benefits under the scheme, only about 5–6 companies have qualified so far. The primary deterrents, according to Deloitte, are the mandatory 50% Domestic Value Addition (DVA) requirement and high investment thresholds ranging between ₹2,000 crore and ₹3,000 crore, which collectively restrict participation to a handful of large manufacturers and slow the pace of electric vehicle (EV) adoption.

Genesis and Objectives of the Auto PLI Scheme

The PLI Scheme for the Automobile and Auto Component Industry was approved by the Union Cabinet on September 15, 2021, with a total financial outlay of ₹25,938 crore for a five-year period spanning FY 2023–24 to FY 2027–28. This scheme forms part of the government’s larger PLI framework worth ₹1.97 lakh crore across 13 sectors. Unlike traditional manufacturing incentives, the auto PLI is a sales-value-linked scheme that deliberately excludes internal combustion engine vehicles and focuses exclusively on Advanced Automotive Technology (AAT) products such as Battery Electric Vehicles (BEVs), Hydrogen Fuel Cell Vehicles (FCEVs), and their associated high-technology components. The general aim is to rebrand India as a new automotive manufacturing hub in the world in terms of clean and advanced manufacturing.

Monetary Construction and Rewards System

Under the scheme, the government has capped total incentives for a single corporate group at ₹6,485 crore. The incentives that can be received by the Champion Original Equipment Manufacturers (OEMs) are between 13 and 16 percent of the calculated sales valuation of qualifying vehicles with an extra 2 percent incentive offered to the high growth successful. The incentive provided to Component Champion manufacturers may be 8 to 11 percent of the sales value with an additional 5 percent incentive on the use of components in the BEVs and Hydrogen Fuel Cell Vehicles. Through this incentive structure, the government aims to attract over ₹42,500 crore in fresh investments, generate incremental production valued at more than ₹2.3 lakh crore, and create approximately 7.5 lakh new jobs over the five-year period.

Conditions of Eligibility and Structural Constraints

Despite its ambitious objectives, Deloitte India highlights that the scheme’s eligibility norms are misaligned with current industrial capabilities. Applicants are required to achieve a minimum Domestic Value Addition of 50%, a target that is difficult to meet given India’s continued reliance on imports for critical EV components such as battery cells, power electronics, and rare-earth magnets. Additionally, auto OEMs must demonstrate a minimum global group revenue of ₹10,000 crore and commit to domestic investments of ₹3,000 crore over five years, while component manufacturers must show global revenues of ₹500 crore and commit ₹150 crore in domestic investments. Deloitte claims that such thresholds help to lock out startups, middle-sized companies, and new-technology entrants of the incentive ecosystem.

Performance Inspection and Low Industry Involvement

The performance of the scheme to date mirrors the restrictive design of the scheme. Despite the large number of incentive applications by over 200 companies, only 56 or 6 firms have been able to qualify, which highlights the low level of inclusiveness of the current structure. Deloitte compares this outcome with the electronics PLI scheme, where early relaxations in localisation and investment norms significantly increased participation and accelerated manufacturing scale-up. The consultancy recommends that the auto PLI may not otherwise be a transformational industrial policy tool because it will turn into a niche incentive programme unless it is made flexible in the same manner.

Taxation Challenges and the Inverted Duty Structure

Another major concern identified by Deloitte is the inverted duty structure within the EV ecosystem. Although completed electric vehicles will be offered a concessional GST rate of 5%, a number of its important inputs and components have a between 12 to 18 percent tax rate, which will raise the cost of production and working capital levels. To make this problem worse, there is the 18% GST charged on the public EV charging services and this increases the cost of operations of charging infrastructure providers and it discourages individual investments. Currently, most GST refunds are confined to the inputs but not capital goods and input services hence trapping a lot of capital in the manufacturing and expansion stage.

Deloitte India’s 2026 Budget Revamp Proposals

In its recommendations for the Union Budget 2026, Deloitte India proposes a comprehensive recalibration of the auto PLI scheme. It proposes that the Domestic Value Addition requirement be relaxed by introducing a progressive plan instead of having a flat requirement of 50 percent at the beginning. Another recommendation of Deloitte is to reduce investment levels in order to allow more players to participate in the EV value chain. On taxes, the consultancy is proposing the extension of GST reimbursement to capital capital goods and input services and the reduction in GST on charging infrastructure in the public to 5% compared with the current charge on electric vehicles.

Alignment with Broader Green Mobility Initiatives

Deloitte emphasises that a restructured PLI scheme would work more effectively when aligned with other government initiatives aimed at accelerating green mobility. These include the PM-eDRIVE scheme, which has a budgetary outlay of ₹10,900 crore for the period 2024–2028 to support consumer adoption of electric two-wheelers, three-wheelers, trucks, and buses, as well as the SMEC scheme, which focuses on attracting investment in electric four-wheelers through duty concessions linked to localisation targets. Together with the ₹18,100 crore PLI scheme for Advanced Chemistry Cell batteries and the FAME India programme, a revamped auto PLI could help create a more balanced and sustainable EV ecosystem.

Policy Implications and Important Policy Questions

The central question raised by Deloitte’s analysis is why a scheme with a ₹25,938 crore outlay has delivered limited results. The answer lies in the mismatch between policy ambition and industrial readiness, where high localisation and investment requirements have restricted access to incentives. A second critical question concerns how relaxing these norms would influence green mobility adoption. Deloitte argues that broader participation would enable faster scaling, cost reductions, and gradual localisation, ultimately making EVs more competitive. Finally, the issue of taxation remains pivotal, as reducing GST on charging infrastructure and correcting the inverted duty structure could significantly improve both manufacturing viability and consumer adoption.

In conclusion, Deloitte India’s call for a revamp of the automobile PLI scheme reflects a pragmatic assessment of India’s green mobility transition. Rather than weakening policy ambition, the proposed changes aim to sequence localisation and investment requirements in line with market realities. If implemented, these reforms could help unlock the scheme’s original targets of ₹2.3 lakh crore in incremental production, ₹42,500 crore in fresh investments, and over 7.5 lakh jobs, while accelerating India’s shift towards cleaner and more sustainable transportation.