Sources report that India is looking at offering incentives over the next five years to auto and component makers, in a bid to increase local production and boost exports.
To be eligible for the incentives, automakers must have revenues of at least 100 billion rupees ($1.3 billion) and an operating profit of at least 10 billion rupees ($131 million) in three of the last five years.
The terms for auto part makers are the same except that the revenue and profit thresholds are lower, at 20 billion rupees and 2 billion rupees, respectively.
Companies must also have earnings from outside India and commit to spending on research.
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.
India's auto sector exports touched $27 billion in the fiscal year ending March 2019.
India is drawing up an incentive scheme for the autos sector aimed at doubling exports of vehicles and components in the next five years, four sources with direct knowledge of the matter told Reuters.
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 export, the 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.
Although discussions are in the early stages, one proposal talks about companies getting benefits based on the distance between the factory and the point-of-sale. Then, there’s another which offers incentives to increase production of those car models that are primarily exported.
This initiative is a part of the Indian Government’s efforts to make our country self-reliant by attracting investment, boost manufacturing and generate jobs in the process. A senior government official who chose to be anonymous said, “For autos, the government has engaged with various stakeholders. We have to see what needs to be done in the global context.”
The move is part of India's effort to create 'champion' sectors to attract investment, generate jobs and boost manufacturing, and comes amid calls by Prime Minister Narendra Modi to be self-reliant 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 a senior government official.
"For autos the government has engaged with various stakeholders. We have to see what needs to be done in the global context," said the official, adding that even though talks are in early stages and details have not been finalized there is a plan to give a "big push" to the sector.
India's auto sector exports touched $27 billion in the fiscal year ending March 2019, led by companies including Ford Motor, Hyundai Motor, Maruti Suzuki, Volkswagen and Bosch, which analysts say stand to gain the most.
The push, however, comes at a time when auto sales globally have been battered because of the coronavirus pandemic and demand may take a while to recover.
To make it a success in the present scenario, India needs to ensure the proposal is not complicated by too many conditions and is not based on sales targets, said Vinay Piparsania, consulting director, automotive, at Counterpoint Research.
"Having a liberal trade policy will allow companies to bring in new and global technologies which will increase their scale and India's competitiveness as an export hub," he said.
The initial scheme has been designed to incentivize large companies and in turn benefit smaller players in the supply chain, making the auto sector more competitive overall, one of the sources said.