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A roadmap for
creating Global
Champions in
Automotive Industry
in India








19 November 2020
Final Report
1

Table of Contents
1. Introduction .......................................................................................................................... 3
1.1. Background................................................................................................................................................... 3
1.2. Objective of the research ............................................................................................................................. 3
1.3. Methodology ................................................................................................................................................ 4
2. Overview of the Indian automotive industry ......................................................................... 5
2.1. Current industry structure and size ............................................................................................................ 5
2.2. Analysis of Indian automotive sector’s export performance .................................................................... 9
2.3. Key challenges & bottlenecks for global competitiveness ....................................................................... 16
2.4. Key Cost Disabilities ................................................................................................................................. 19
2.5. Opportunities and potential for Growth ................................................................................................. 20
2.6. Outlook & Emerging Trends for the Indian Automobile Industry ........................................................ 22
2.7. Key Takeaways........................................................................................................................................... 25
3. Global automotive incentive schemes.................................................................................. 27
3.1. Key incentive schemes/mechanisms deployed for promoting automotive industry ............................. 27
3.2. Global Incentive Schemes ........................................................................................................................ 28
3.2.1. Import tax/VAT exemptions – Mexico: ........................................................................................ 28
3.2.2. Volume assembly allowance/Production incentive – South Africa: ........................................... 28
3.2.3. Low cost financing arrangements - Brazil: ................................................................................... 29
3.2.4. Subsidy on export of vehicle and auto parts – Uruguay: ............................................................. 30
3.2.5. Favorable cost of doing business – Turkey: .................................................................................. 30
3.2.6. Fiscal incentives to boost exports – Thailand: ............................................................................. 30
3.2.7. Tariff elimination through FTAs – Thailand: ................................................................................ 31
3.2.8. Automotive transformation scheme - Australia: ........................................................................... 31
3.3. Key takeaways ........................................................................................................................................... 31
4. Considerations and guidelines for incentive scheme design ............................................... 32
4.1. Key objectives of the incentive scheme ................................................................................................... 32
4.2. Guiding principles for automotive scheme design ................................................................................. 34
5. Automotive incentive scheme framework ........................................................................... 37
5.1. Overview of proposed incentive schemes ................................................................................................. 37
5.2. Eligibility Criteria for Global Champion .................................................................................................. 37
5.3. Timeline and duration of the schemes .................................................................................................... 38
5.4. Application & Disbursement Process ...................................................................................................... 39
5.5. Scheme details .......................................................................................................................................... 40
5.5.1. Scheme #1: ‘Global Sourcing’ incentive scheme ........................................................................... 40
5.5.2. Scheme #2:‘Champion OEM’ incentive scheme ........................................................................... 43
5.5.3. Scheme #3: ‘Production Linked’ incentive scheme ....................................................................... 45
5.5.4. Scheme #4: ‘Component Champion’ incentive scheme ................................................................ 47
6. Economic impact of incentive schemes ...............................................................................50
6.1. Globalization impact ................................................................................................................................ 50
6.2. Government Incentive ............................................................................................................................. 50
6.3. Economic impact ....................................................................................................................................... 51
2

6.4. Impact on MSMEs .................................................................................................................................... 53
7. Scheme Implementation Suggestions .................................................................................. 55
7.1. Applications assessment, baselining & benefits disbursement ............................................................... 55
7.2. Scheme Performance Review & Continuous Improvement .................................................................... 55
Appendix: ................................................................................................................................ 56
3

1. Introduction
1.1. Background
The Global Scenario:
Since the development of the first few prototypes, the automotive industry including automotive components
has witnessed a continuous evolution and has become one of the leading global industrial sectors. The industry
today accounts for one in ten jobs in industrialized countries. Automotive industry has been a catalyst for strong
growth opportunities in developing countries, because of the strong dependence with other sectors which feeds
into its supply chain.
The global automotive industry includes vehicle original equipment manufacturers (OEM), automotive
component manufacturers, aftermarket parts manufacturers, dealers and retailers. The growth of automotive
component industry is highly correlated to growth in the original equipment manufacturers (OEMs) in
automobile industry.
Over the past few decades, due to availability of low-cost manufacturing options, rising urbanization and
increasing Purchasing Power Parity, the manufacturing landscape for automobiles and auto-components is
shifting toward Asian countries such as China, India, Thailand, Indonesia etc.
The Indian Scenario:
The Indian automotive sector is a US$100+ billion industry
1
, of which exports comprises of US$27 Billion
(2019). Auto OEMs exports out of India is US$11.7 Billion
2
, which puts around 12 countries ahead of India in
terms of export performance. The auto-component industry’s exports amounted to US$15 billion
3
in FY 2019
and exports have been growing at a CAGR of 11.6% between FY 16 and FY19. By comparing India’s share of
exports in global automotive trade, it is visible that there is significant opportunity for India’s automotive
exports to grow.
However, the Indian automotive industry has certain disabilities with respect to competing nations, owing to
certain infrastructural inefficiencies and bottlenecks. Some of the key challenges that industry participants face
include high logistics cost, high cost of finance, high energy cost and inadequate availability of power, difficulty
of doing business, and limited Free Trade Agreements which restricts market access on a bi-lateral basis.
1.2. Objective of the research
The primary aim of this research is to develop a framework for a robust incentive scheme that will make Indian
Automotive industry more competitive and drive the process of globalisation. Such a framework should guide
policy decisions to promote global champions, attract new investment in the automotive industry, grow demand
and economic value add for the domestic sector including Medium Small Micro Enterprises (MSME). It should
also create employment opportunities and enhance the overall competitiveness of Indian automotive sector.


1
EMIS, PwC Analysis
2
Ministry of Commerce, UN Comtrade
3
Ministry of Commerce - HS Code Reports - Chapter 87
4

The key objectives of this research are to:
Analyze India’s import, export, domestic market performance and identify opportunities for growth
Evaluate challenges and bottlenecks that causes disabilities for companies based in India in achieving
global competitiveness
Study incentive measures used by other countries to support development of their automotive industry
Government of India has already announced its strategy of identifying Global champions that can drive
rapid growth in industrial output and exports. This study analyses how this concept can be applied to
the automotive industry
Lay out guidelines and framework to design an incentive scheme that promotes global integration,
enhances industry competitiveness and drives growth in industry output including exports
1.3. Methodology
The following methodology was followed to conduct the research and arrive at the framework for the incentive
policy:





Automotive Industry Analysis
A thorough analysis of the Indian automotive industry was undertaken to understand the historical export/
import performance and the growth potential across the value chain – Automotive OEMs and Automotive
components. Review of existing literature on public databases was also undertaken to understand the current
challenges that restrict the import export performance of the industry.
Study of Global Incentive Schemes
A comprehensive study of global incentive schemes was completed to evaluate the different incentive scheme
mechanisms adopted by leading and emerging automotive manufacturing countries.
Discussion with Industry Stakeholders
Multiple interactions with government bodies such as Niti Aayog, Department of Heavy Industries as well as
with industry associations such as SIAM (Society of Automotive Manufacturers) and ACMA (Auto-component
manufacturers association) were undertaken to understand the current challenges and gather their perspective
on areas of required intervention.

Automotive
industry analysis
Study of Global
Incentive Schemes
Discussions
with Industry
Stakeholders
5

2. Overview of the Indian automotive
industry
As discussed in section 1.3, a thorough analysis of the current state of the Indian automotive sector is required
to understand the current industry context, analyze the sector’s performance in terms of domestic and export
growth, and understand the current bottlenecks / challenges that can be alleviated to unlock growth and further
the globalization of the sector. Each of these areas have been detailed in the sections below:
2.1. Current industry structure and size
Since the latter half of the 1990s, domestic automotive manufacturers started setting up large manufacturing
facilities in India. Following the success of these domestic manufacturers and post de-licensing of the auto
sector in 1993, foreign automotive manufacturers started entering the lucrative Indian market. By the early
2000s several global automotive companies had a footprint in India.
The automobile landscape in 2020 has several players operating in India. These players include large Indian
home-grown manufacturers along with Indian subsidiaries of global automobile manufacturers. Vehicles
produced in India cater to both the Indian market as well as foreign markets.
The automotive sector consists of a complex global supply chain which can be divided into the following 4
entities:


1. Suppliers – These are auto-component makers that supply assemblies, sub-assemblies and individual parts
to the assembler of the finished product.
Suppliers can further be classified into Tiers. A supplier that directly sells to the OEM is known as a Tier 1
supplier. A Tier 1 supplier may purchase sub-assemblies, individual components and/or materials from another
supplier. Any supplier delivering goods to a Tier 1 supplier is known as a Tier 2 supplier. Tier 1 suppliers
directly interface with OEMs and are manufacturers of automotive components. Upstream suppliers (i.e. Tier 2
and below) can be auto-component manufacturers, machined goods producers and/or raw material suppliers.
For the purpose of this study, suppliers will include only Tier 1 – Tier N auto-component manufacturers.
2. Purchase IPOs (International Purchase Offices) are automotive component procurement houses that
purchase components, parts and materials for an automotive company’s global manufacturing operations. IPOs
leverage cost, quality & economies of scale benefits to make favorable purchase decisions.
Large Tier 1 suppliers and original equipment manufacturers (OEMs) have Purchase functions in India that
develop local suppliers, manage global RFP processes and facilitate purchase of components. The acquired
materials may be used for production within the country or may be exported to support manufacturing
operations in another country.
6

3. Original Equipment Manufacturer (OEM) – These companies assemble the components and parts
acquired from suppliers to produce the finished vehicles. All motor-vehicle manufacturers would fall under the
category of OEMs.
OEMs may export, import or sell the finished motor-vehicle domestically. For export and import of the finished
goods, OEMs may follow one of two approaches:
a. Completely knocked Down (CKD) / Semi Knocked down (SKD)/Component Aggregates – In this approach,
the OEM ships sub-assemblies / components in the form of kits to the destination country where these sub-
assemblies are assembled into a finished motor vehicle.
b. Completely Built-Up (CBU) – In this approach, the entire finished motor-vehicle is shipped to the destination
country.
4. Aftermarket – The aftermarket comprises of sellers of automotive spare parts. The sellers may be
automotive OEMs or distributors of spare parts. For both these seller categories, the spare parts are sourced
from component suppliers.
The graphic below explains the interactions and structure of the automotive industry.
Figure 1 - Structure of the Automotive Industry

As India’s GDP output has increased, so has its citizens’ propensity of consumption. Growth in household
income is highly correlated to the increase in sales of motor vehicles
4
. During the financial year (FY) 2015, 23.97
million motor vehicles were manufactured in India. By FY 2019, this number increased to 31.80 million motor
vehicles. This corresponds to a compounded annual growth rate (CAGR) of 7.3% for the 5-year period between
FY15 and FY19. Below is the split by category:


4
The Institute for Social and Economic Change - Income and Vehicular Growth in India: A Time Series Econometric
Analysis
7

Table 1 - Motor Vehicle Production in India (units)

Source: SIAM
Further, the Indian automotive industry recorded a turnover of $76 billion in FY2015 which increased to $106
billion in FY2019 representing a CAGR of 8.7%. Turnover numbers have been computed by considering sales of
auto-components, value added by OEMs and exports (auto-components and motor-vehicles) in the given year
5
.
The Indian automotive industry is also one of the leading employment generators with ~37 million people, both
directly and indirectly employed in the sector. Direct workers include people directly employed by Automotive
OEMs and auto-component companies to manufacture and assemble automotive vehicles and components as
well as support and supervisory staff that enable the operations of these companies. Additionally, every vehicle
produced generates secondary and tertiary employment. Examples of such workers include logistics providers,
service contractors, OEM dealership staff, third party warehouse workers, etc.
6

Basis the structure envisioned above and for the purpose of this study we can divide the automotive sector into
two main sub-divisions:
a. Original equipment manufacturers (OEMs)
a.1 - Turnover
The graph below captures the total turnover along with the segment-wise turnover for 42 automotive OEMs
with manufacturing operations in India. All values are in billions of US Dollars. Exchange rate assumed = 1US$
= INR 70


5
PwC Analysis, Capital Line, EMIS
6
Ministry of Heavy Industries and Public Enterprises Annual Report 2018-19
FY 2015 FY 2019
CAGR
('15 - '19)
Passenger Vehicles

3,221,419
4,026,047 5.7%
Commercial
Vehicles

698,298
1,112,176 12.3%
2 Wheelers

18,489,311
24,503,086 7.3%
3 Wheelers

949,019
1,268,723 7.5%
Tractors

612,994
897,548 10.0%
Total

23,971,041

31,807,580
7.3%
8

Figure 2 - Annual turnover of OEMs in India ($ billion)

Source: Capitaline, Emerging Market Insights (EMIS), PwC Analysis

a.2 – Trade
As per data from Ministry of Commerce – Government of India, auto OEMs exported motor vehicles worth
$11.7 billion while motor vehicles worth $1.4 billion were imported into the country in FY 2019
7
.
Trade values have been computed using relevant 4-digit Harmonized System (HS) codes under Chapter 87.
b. Auto-component manufacturers (ACMs)
b.1 – Turnover
The graph below captures the turnover for different segments under the auto-components industry. All
numbers are in billions of US Dollars. Automotive component industry has seen a healthy growth in revenues
reaching US$56.9 Bn in FY2019


7
Ministry of Commerce - HS Code Reports - Chapter 87
Exchange Rate 1 USD = INR 70
9

Figure 3 – Market size of the Auto-components industry in India ($ billion)


Source: Capitaline, EMIS, SIAM, Annual Reports
b.2 – Trade
As can be seen from graph above, auto-components work $15 billion were exported from India while $17.7
billion worth of components were imported into the country in FY 2019
8
.
Trade values have been computed using data for 219 HS codes that are classified as automotive components by
the Automotive Component Manufacturers Association (ACMA)
2.2. Analysis of Indian automotive sector’s export
performance
Exporting to multiple markets enables firms to ensure lower demand volatility and maintain economies of
scale. This section highlights the Indian automotive industry’s export performance and analyses the segments
that outperform the others.
In FY 2019, the Indian automotive sector recorded exports worth ~$27 billion. This value includes the export of
auto-components as well as motor vehicles. The graph below captures the auto sector’s exports performance
over the past few years. All numbers are in billions of US Dollars.


8
Ministry of Commerce – HS Code level reports
Exchange Rate: 1 USD = INR 70
10

Figure 4 - Annual Exports Performance of India's Automotive Industry ($ billion)


Source: Ministry of Commerce, UN Comtrade
While the value of exports has grown at a CAGR of 8.0% between FY16 and FY19, it is imperative to understand
the segments driving growth in exports. Fast growing export segments indicate a comparative advantage that
can be utilized further to increase exports.
The table below breaks down total exports into auto-component and motor vehicle exports:
Table 2 - Exports split of the Automotive Industry ($ billion)
FY16 FY17 FY18 FY19
OEM 10.4 11.2 12.4 11.7
ACM 10.8 10.9 13.5 15.0
Total 21.2 22.1 25.9 26.7
Source: Ministry of Commerce, UN Comtrade
1. Exports by OEMs
In order to study the export of motor vehicles by OEMs it will be useful to segregate exports into segments such
as passenger vehicles, commercial vehicles, 2 wheelers, 3 wheelers and tractors. The following illustrative
captures the export numbers by segment. All numbers are in million units.

11

Figure 5 - Exports performance by vehicle segment (million units)

Source: SIAM, Tractor Manufacturers Association (TMA), CRISIL
From the illustration above, it is evident that the 2 wheelers segment exports the greatest number of units
followed by the passenger cars segment. However, some finer nuances may be revealed by exports as a
percentage of total production.
Table 3 - Share of Exports in Total Vehicle Production for Each Segment
FY16 FY17 FY18 FY19
Passenger Vehicles 18.8% 20.0% 18.6% 16.8%
Commercial
Vehicles
13.1% 13.4% 10.8% 9.0%
2 Wheelers 13.2% 11.7% 12.2% 13.4%
3 Wheelers 43.3% 34.7% 37.3% 44.7%
Tractors 13.6% 11.3% 10.5% 10.2%

Source: SIAM, TMA
A high proportion of 3 wheelers are exported from India, indicating that this segment may have a comparative
advantage. Further, small proportion of exports of commercial vehicles and tractors may demonstrate lack of
global competitiveness and export focus in these segments.
1.a – Passenger Vehicles
On analyzing passenger vehicles exports, we find that 93% of all exports are driven by just 3 sub-segments:
12

Table 4 - Top passenger vehicle sub-segments exported (units)
Sub - Segment
(Engine Capacity)
Export Nos. % of Total
Exports
Compact (<1.4 Litres) 280,171 41.4%
Mid-size (<1.6 Litres) 174,561 25.8%
Compact+ (Utility
Vehicles)
176,201 26.0%
Source: SIAM
The sub-segments driving passenger vehicle exports are compact and mid-size cars along with compact sports
utility vehicles (SUVs). The Indian market is known for its preference of small and mid-sized cars. Auto OEMs
in the country spend on R&D to develop small & mid-sized cars. At the same time producing these small & mid-
sized cars in India is cost-effective due to economies of scale offered by the production lines for such cars.
Hence, cars with engine capacities less than 1.6 litres along with Compact utility vehicles less than INR 15 lakh
dominate the passenger vehicle export landscape in India.
1.b – Commercial Vehicles
Overall commercial vehicle exports numbers and proportion of exports are low. Diving into exports data also
reveals that exports are mostly scattered across sub-segments. The top 3 sub-segments account for ~60% of all
commercial vehicle exports.
Table 5 - Top commercial vehicle sub-segments exported (units)
Sub - Segment
(Body Weight)
Export Nos. % of Total
Exports
Pick-Up (2-3.5 tons) 21,462 35.3%
Mini-Truck (>2 tons) 8,300 13.7%
Pass. LCV (5-7.5 tons) 5,707 9.4%
Source: SIAM
It is evident that low tonnage commercial vehicles are exported from India. Unlike most countries, low tonnage
commercial vehicles are more popular in India. Due to limited demand for low tonnage commercial vehicles
within most countries, India produced commercial vehicles are not in high demand globally.
1.c – 2 Wheelers
For 2 wheelers, the top 3 sub-segments account for ~87% of exports.

13

Table 6 - Top 2-wheeler sub-segments exported (units)
Segment
(Engine Capacity)
Export Nos.
FY20
% of Total
Exports
75cc to 110cc 1,559,846 44.3%
150cc to 200cc 859,978 24.4%
110cc – 125cc 658,431 18.7%
Source: SIAM
The sub-segments forming the majority of 2-wheeler exports are engine sizes between 75cc and 200cc. These
are essentially small to medium engine 2 wheelers. The domestic 2-wheeler market in India is heavily tilted
toward these small to medium engine 2 wheelers, hence, manufacturing these 2 wheelers in India is cost
competitive.
1.d – 3 Wheelers
While top 3 sub-segments account for ~100% of exports, just one sub-segment accounts for 98.5%.
Table 7 - Top 3-wheeler sub-segments exported (units)
Sub-Segment
(Body Weight)
Export Nos.

% of Total
Exports
Passenger (<1 ton) 494,613 98.5%
Goods (<1 ton) 6,319 1.3%
Passenger (1-1.5 ton) 1190 0.2%
Source: SIAM
India is one of the few countries that produces passenger 3 wheelers at a mass scale. The export demand for
passenger 3 wheelers has grown rapidly from geographies such as Africa and South-East Asia, which prefer
using 3 wheelers for last mile connectivity.
1.e Tractors
Tractors account for a small number of units and a relatively smaller proportion of exports. The top 3 sub-
segments amount to 93.7% of all exports.
Table 8 - Top tractor sub-segments exported (units)
Sub-Segment
(Engine Size)
Export Nos.

% of Total
Exports
>51 hp 46,268 60.8%
41-50 hp 18.925 24.9%
<31 hp 6,538 8.6%
Source: TMA
14

Despite India being the largest producer of tractors globally, its export volumes are small. This can be attributed
to a domestic preference for low horse-power tractors. A smaller land-holding size coupled with lower farm
mechanization in India spurs the demand for tractors between 31-50 horsepower.
Globally, the emphasis has been on increasing productivity by moving away from traditional farming methods
to adopting other powered equipment and implements requiring the use of high-powered tractors (greater than
51 horsepower). This explains the highest share of high-powered tractor in exports from India. However, lower
numbers may result from a lack of global cost-competitiveness due to a small production base for high powered
tractors.
Key Takeaways from OEM Exports
India has a comparative advantage in producing small to mid-size passenger vehicles and 2 wheelers
3 wheelers have the largest proportion of exports to vehicles produced. Indian passenger 3 wheelers in
demand in several developing economies
Small to mid-sized commercial vehicles and tractors preferred within India, opposed to the trend
globally. As a result, these 2 segments have limited global competitiveness
2. Exports by Auto-components manufacturers (ACMs)
India remains a net-importer of auto-components. In FY 2019, the trade deficit for auto-components stood at
$2.7 billion. However, the trade deficit has largely remained around $2 - $2.5 billion level since FY 2015 while
value of exports from India has increased. The chart below details the value of auto-component exports from
India. Numbers are in billions of US Dollars:
Figure 6 - Annual auto-component exports from India ($ billion)


Source: Ministry of Commerce - Govt. of India
Overall automotive exports from India (OEM+ ACM exports) grew at a CAGR of 8.0% (FY16 – FY 19).
Compared to the overall automotive exports, auto-component exports have grown at a faster pace, recording a
CAGR of 11.6% between FY 2016 and FY 2019. The value of auto-components exports has been computed using
219 HS Codes specified by the Automotive Component Manufacturers Association (ACMA).
15

The graphic below shows the split of auto-component segments exported from India in FY 2019:
Figure 7 - Aggregate split of auto-components exported from India in FY 2019


Source: Ministry Commerce, ACMA, PwC Analysis
Drive transmission and steering has remained the largest export segment from India for the last 5 years.
Similarly, engine components have not moved from the 2
nd
spot either. However, the highest growth segment
has been Electricals & Electronics, recording ~15% year-on-year growth since FY 2017. The high growth is line
with increasing “Electronification” of automobiles which has spurred demand for this category.
The following graphic shows India’s largest export markets for auto-components in FY 2019:
Figure 8 - Top global export destinations of Indian auto-components

Source: Ministry of Commerce
The United States of America and Europe are the largest markets for Indian auto-components. Both United
States and Germany are large producers of motor vehicles. However, for its proximity to the United States and
16

cost advantage, Mexico is a large growth market. In FY 2019, India’s auto-components exports to Mexico
recorded a year-on-year growth of 25% totaling $439 million.
2.3. Key challenges & bottlenecks for global
competitiveness
For Indian automotive industry to further enhance its global integration, it is essential to unlock bottlenecks
that restricts its goods to have a competitive advantage in the global automotive market. In order to understand
the automotive industry’s take on barriers to exports competitiveness, interactions with experienced
stakeholders across OEMs, auto-component manufacturers and industry interest groups were setup. Basis our
interactions, following were the key challenges highlighted by participants:
1. Price competitiveness and increased competition from other competing nat ions
Indian manufactured automotive vehicles and components face strong price competition from other developing
nations. Several inefficiencies and utility cost structures increase manufacturers’ cost structure, leading to
higher costs. A case in point would be high interest rates for credit made available to exporters. While rates
have hovered around 8% - 11% in India, these are as low as 4% in competing nations such as Thailand. Another
cost head higher than competing nations is power tariff. A World Bank study on Power distortions in South
Asia
9
determined that state owned power plants in India are less efficient than private plants. The report also
states that there are significant transmission and distribution losses with more than 20% of power generated
lost during transmission in FY 2016. These losses amounted to roughly INR 700 billion in the same fiscal. Extra
charges such as a coal cess and royalty charges in the metals sector also add to the cost burden of
manufacturers.
2. Ease of doing business in India
While India’s ranking on the Ease of Doing Business Index has improved, it still has a long way to go compared
to its competing countries in the automotive industry. Several stakeholders cited inflexible and slow
government processes, heavy regulatory burden and access to skilled labour as key challenges. One area that
stands out among the rest in ease of doing business is the Logistics sector. Logistical inefficiencies push up
transportation costs significantly in India and result in price disadvantage and delivery inconsistency as
compared to other countries. This typically translates into higher inventories to be maintained at warehouses in
the exporting nations, adding further to the costs.As per World Bank’s Logitics Performance Index, India ranks
the lowest in Timeliness of shipments compared to China, Thailand, Vietnam and Indonesia. Quality of logisitcs
infrastructure is another area of concern highlighted by the index with India only marginally better than
Indonesia. Vietnam, Thailand and China remain considerably ahead of India on this parameter
10
. While India
ranked 63 on World Bank’s Doing Business Index 2020, China and Thailand ranked 31 and 20 respectively.
Mexico, which is a major automotive producer ranked closer to India at 60
11
.


9
The World Bank - In the Dark - How much do power distortions cost South Asia? (2019)
10
The World Bank – Logistics Performance Index (2018)
11
The World Bank – Doing Business 2020
17

3. Lack of Free-Trade Agreements
A limited number of free-trade agreements hamper the competitiveness of Indian exports. Looking at coverage
of global tade blocs, India currently has 42 trade agreements (inlcuding those under negotiation)
12
. While these
trade agreements cover blocs such as EU and LATAM, a major exclusion is Africa. India also does not leverage
its trade agreements as deeply as its competitiors. Despite India having multiple trade agreements with SAARC
and ASEAN nations such as the SAARC Preferential Trading Arrangement (SAPTA) followed by the South
Asian Free Trade Agreements (SAFTA) as well as Indo-Myanmar Border Trade Agreement, ASEAN-India Trade
in Goods Agreement and Indo-Sri Lanka FTA, India’s trade performance in contrast with China’s in the South
Asian region leaves much to be desired. In 2014, Indian exports to South Asia accounted for $24.70 billion
while Chinese exports stood at $60.41 billion
13
. In the case of the CEPA with Japan, bilateral trade has either
declined or stagnated after the 1st year of implementation but there has been a substantial rise in trade deficit
with that country also.
4. Lack of investment in brand by Indian companies
Indian OEMs and component manufacturers need to spend more in order to enhance brand awareness in
international markets. Branding helps create share of mind for the brand and Large Indian OEMs should
evaluate sustained investments in building the brand for greater customer acceptance. Indian auto-component
makers must similarly devise international B2B marketing strategies through ongoing market outreach.
Leveraging digital marketing can be an effective channel for building the made in India brand.
5. Exchange rate variation
A volatile currency has negative effects on industry as depreciation tightens liquidity for manufacturers. The
foreign currency component of export credit availed by manufacturers gets revalued higher (in INR), reducing
available limits and depriving exporters of funds. Further, volatility in exchange rates result in uncertainty on
profitability especially as profit margins can be quite thin for several companies.
6. Research & Development (R&D) investment gap
Despite the automotive sector contributing ~7% of India’s GDP
14
, the R&D expenditure of the sector remains
limited. An analysis of the top automobile manufacturers in India reveals that cumulatively, these firms spent
~2.6% of revenue earned on R&D
15
compared to 5%-6.5% of revenue for major global manufacturers
16
. Within
the Indian OEMs, major passenger car manufacturers spend ~5% of automotive revenues on R&D since all
major development projects are driven from India for these firms. The large Indian two-wheeler players’ R&D
spend stands at ~1.6% of revenue
17
. Among the automotive component manufacturers, R&D spends are even
lower, with the top 10 Indian component manufacturers by revenue spending ~0.8% of their revenues on
research & development
18
.
In recent years, several global automobile firms have set up dedicated R&D facilities in India. They hope to
leverage the abundant and hence, affordable engineering talent in country to drive down costs for their in-

12
Department of Commerce – Trade Agreements (Current Engagements/Negotiations)
13
Brookings Institution India Center - India's Limited Trade Connectivity with South Asia (2020)
14
CII – Automobiles sector
15
EMIS, Capitaline, PwC analysis
16
Company annual reports, PwC analysis
17
Company annual reports, PwC analysis
18
Company annual reports, PwC analysis
18

house product development. However, the heightened R&D activity in India is mainly geared toward lower
value activities within the R&D value chain.
The R&D value chain can be divided into three activities: fundamental research, design & engineering of
automobiles and development. The captive R&D centres in India are undertaking development work. There is
R&D skill gap among the higher value activities in the R&D value chain in India.
The R&D captive centres established in India by global automotive players undertake several activities
including the following development activities & services in India:
Homologation – Adapting global product designs to meet Indian standards and regulations. The
activity involves adapting the design of not only the automobile but in some cases also the design of
components to obtain certifications of roadworthiness
Engineering design services – Involves the use of computer aided systems (software) to convert 3D
renderings of vehicle components into software models. Design services also assist engineers in
preparing the Bill of Materials (BoM) for various activities such as production, prototyping, testing, etc.
Cost engineering – Involves the estimation of the manufacturing & procurement cost of vehicle parts.
This activity allows OEMs to source components at lower costs for its global manufacturing operations
Testing services – The design of new vehicles and components is subjected to various stress tests in
order to determine roadworthiness
Comparatively, Indian OEMs undertake higher value design and engineering activities which involve vehicle
platform design, vehicle exterior design, components design and testing as well as the design and testing of
critical sub-assemblies. Given the paucity of high-end R&D talent in India, OEMs have resorted to models such
as acquiring international design & engineering companies to bridge the talent gap and fast track R&D
capabilities. OEMs in India need to increase their investment in R&D and build capabilities across the value
chain.
Despite Indian OEMs’ focus of design and engineering, automotive R&D in India requires a push toward
fundamental research and pure R&D. With the global automobile sector at the cusp of disruption, a push
toward pure research shall bode well for the sector. As electric vehicles and alternative fuel sources start coming
into the mainstream, India is presented with an opportunity to become a leader in research. An increased focus
on vehicle safety and light weight structures to reduce emissions throws up the opportunity to expand materials
research with regards to the automotive sector. On the auto components front, Indian manufacturers generally
lack the technology for electrical and electronic components except a few companies. In FY2020, India
imported electrical and electronic components worth $2.5 billion
19
. While this was the third largest import
category under vehicle components, it has been the fastest growing import head for the last 3 years, growing at
compounded annual growth rate of ~9% between FY2017 and FY2020
20
. With connected vehicles entering the
mainstream, “electronification” of vehicles shall only increase. Indian auto component manufacturers must
seize this opportunity to shore up their product lines to meet this challenge. Effective industry-academia
collaborations and research incentives may nudge the Indian automotive sector to the highest value generating
activities within the R&D value chain.

19
Ministry of Commerce – HS Code-wise data
20
Ministry of Commerce, PwC analysis
19

2.4. Key Cost Disabilities
21
Automotive manufacturers in India are adversely impacted by the inefficiencies in the supporting infrastructure
and suffer cost disabilities in comparison to other automotive producing nations.
Of all the cost incurred by Automotive manufacturers in India, outbound freight, inbound logistics, power &
fuel, finance & depreciation costs & taxes are directly impacted through government policies, infrastructural
bottlenecks and ineffieciencies. These cost heads can add up to disabilities of around 5-8% to the total expenses
incurred by automotive manufacturers. Further details on cost structure of Automotive OEMs & Auto-
component players is presented in the Appendix.
The table below compares the key cost drivers for automotive producers in India in comparison to other
emerging automotive manufacturing countries:

Table 9 – Comparison of Key Cost Drivers
Production Factor India China Thailand Indonesia Vietnam
Import Duty on Auto-
Components (%)
7.5 – 20% 0-17% 0-30% 0-30% 0-30%
Import Duty on Basic
Raw Materials (%)
9% 5.6% 3% 5.3% 5%
VAT / GST (%) 18/28% 13% 7% 10% 5/10%
Average Power Cost
(INR / KWH)
8.5 6.87 8.92 5.32 6.1
Logistics Ranking 44 26 32 46 39
Average Lending Rate
(%)
8-11% 4.3% 4.1% 10.5% 7.4%
Corporate Tax Rate 25.17% 25% 20% 25% 20%
Source: ACMA Report on Potential Exporter & Global Manufacturing Champion, World Bank, ILO

21
PwC Analysis, ACMA, World Bank
20

While Indian manufacturing wages are lowest among countries compared above, inflexible labor laws increase
the overall employee cost burden for the companies. High import duties and local indirect tax rates also push
above the overall input material costs for the manufacturers and can increase the overall costs by 2-3%.
It is a known fact that logistical inefficiencies push up transportation costs significantly in India. As per World
Bank’s Logitics Performance Index, India ranks the lowest in Timeliness of shipments compared to China,
Thailand, Vietnam and Indonesia. Quality of logisitcs infrastructure is another area of concern highlighted by
the index with India only marginally better than Indonesia. Vietnam, Thailand and China remain considerably
ahead of India on this parameter. The impact of such logistical inefficiencies on overall cost of the Indian
automotive manufacturers can be between 1.5 to 4%, depending on the distance of point of sales from the
factory.
A World Bank study on Power distortions in South Asia determined that state owned power plants in India are
less efficient than private plants. The report also states that there are significant transmission and distribution
losses with more than 20% of power generated lost during transmission in FY 2016. These losses amounted to
roughly INR 700 billion in the same fiscal. These inefficiencies increase the energy tarrif for Indian
manufacturers and can increase the overall costs for automotive manufacturers by 0.5 – 1%.
The higher lending rate for Indian companies also push up the cost of capital and overall finance costs and
adversely impact the plant modernization plans of Indian manufacturers. The higher lending rates can
additionally increase the overall costs for Indian auto manufacturers by 0.5 – 1%.
On the whole, inefficiencies in the enabling infrastructure can lead to a cost disability of 5-8% for Indian
manufacturers in comparison to other automotive manufacturing countries. A robust and targeted incentive
mechanism is required to address the disabilities and provide an even platform to the Indian automotive sector.
2.5. Opportunities and potential for Growth
Table 10 - Top Vehicle exporting nations in 2019 ($ billion) (Source: UN Comtrade)
Country OEM Exports (2019)
Germany $172.10
Japan $113
Mexico $87.80
United States of America $85.20
South Korea $43.50
China $27.80
Czech Republic $24.50
Slovakia $24.50
Turkey $20.80
Thailand $20.0
India $11.70
Brazil $9.55
Indonesia $4.53
Vietnam $0.61
21


India’s potential for growth in global automotive market can be determined by looking at some of the largest
OEM exporting nations. The table 10 below captures OEM exports in the calendar year 2019. All values are in
billions of US Dollars.
Top exporters such as Germany and Japan are home to some of the largest motor vehicle manufacturers in the
world. These manufacturers’ domestic production has led to high export numbers for these top players.
Meanwhile, Indian OEMs export considerably more than Indonesia and Vietnam. However, Thailand and
China remain ahead. These 2 countries demonstrate an immediate potential for growth in OEM exports from
India.
For opportunities in growth of auto-components exports, a list of the world’s largest importers of auto-
components presents possible markets. The table below also captures Indian auto-components’ current share in
the import bill of 10 largest importers of auto-components globally. All values in billions of US Dollars:
Table 11 – India’s auto-component exports for top global importing nations
S.No. Country
Total
Imports
(2019)
US$
Billion
India's Share
(% of total
imports)
1 United States of America $197 1.9%
2 Germany $128 0.9%
3 China $81 0.5%
4 Mexico $72 0.8%
5 Canada $50 0.6%
6 France $50 1.2%
7 United Kingdom $48 1.5%
8 Span $38 1.1%
9 Japan $37 1.1%
10 Italy $30 2.0%

Source: Automotive Component Manufacturers’ Association (ACMA)
The table 11 clearly shows that India’s market share isn’t greater than 2% in any of these markets. While the
United States is India’s largest export market for auto-components by value, its market share is in low single
digits. Meanwhile, China supplies $33 billion of auto-components to the United States accounting for 17.2%
market share in the United States’ imports. Looking at Japan, China and Thailand export components worth
$12.8 and $3.3 billion respectively. This gives China and Thailand a market share of 34.6% and 8.9%
respectively.
Drive Transmission & Steering and Engine Components are the two largest export categories for Indian auto-
components, accounting for 53.2% of component exports. With the rise of electric vehicles, demand for several
components belonging to these 2 categories may be affected in the future. Component manufacturers must
22

sense opportunities arising from the transition to electric vehicles and connected mobility. These trends in auto
sector are resulting in an increasing demand for components in the Electricals & Electronic segment and auto-
components manufacturers in India must be ready to pivot their product offerings to expand exports.
2.6. Outlook & Emerging Trends for the Indian Automobile
Industry
The sale of motor vehicles in India has grown rapidly since the beginning of the new millennium. Between 2001
and 2016, the number of new vehicle registrations in the country increased at a compounded annual growth
rate (CAGR) of 10.01%
22
. The increased motorization of Indian roads has given rise to four main externalities:
1. Pollution - As per a recent study conducted, India houses 21 of the 30 most polluted cities in the world
23
. Of
these 21 cities, majority are housed in the northern region of the country reporting Air Quality Index (AQI)
levels at three times the permissible limited set by the United Nations. Studies conducted by the National
Institute of Health Sciences have indicated that 51% of pollutants are released by industries, 27% by vehicles,
8% by crop burning and the remaining 5% by fireworks
24
.
In 2019, India launched the “Clean Air Programme” with a target of reducing PM 2.5 and PM 10
concentrations by 20% - 30% within 2024 - taking 2017 as the base year
25
. As per the Paris Agreement adopted
by India on 12 December 2015, the country aims to cut GHG emissions by 33%-35% of 2025 levels by 2030. A
switch to electric vehicles shall assist India in meeting the targets set.
In order to meet targets under the Clean Air Programme & Paris Climate Accord, India needs to address its
second largest source of pollutants, i.e. motor vehicles. Hence, a clear trend toward reduction in vehicular
emissions can be seen emerging.
2. Congestion - Indians’ preference for private modes of transportation have resulted in clogged city roads,
state and national highways. This affinity for private transportation can be attributed to inadequate public
transport infrastructure which has resulted in an increased number of vehicles per kilometer of road in cities.
Further, lack of median-divided roads and poor adherence to traffic rules & lane driving cause the congestion
seen on Indian roads.
Major Indian cities now rank as some of the most congested in the world. Within some of these major cities, the
average trip speed is less than 10 kilometres per hour. A recent study by Dutch firm Tom Traffic Research
indicates that an average trip on Indian roads take 150% of the time to complete compared to a similar trip in
other Asian cities
26
. At low speeds, scientific studies reveal that vehicles burn fuel inefficiently. At average trip
speeds between 5 and 20 kilometres per hour, pollutant emissions have been shown to be 4 to 8 times as much
as the pollutant emissions would have been at average speeds of 55 to 70 kilometres per hour
27
.
Traffic congestion in India’s four major cities is estimated to cost INR 1,60,000 crore annually. Most of the
estimated social costs arise through pollution caused by exhausts from vehicles. As per a recent study by Tom
Traffic Research, 3 of the world’s 5 most congested cities are in India (Bengaluru, Mumbai & Pune). The same

22
Ministry of Road Transport & Highways – Road Transport Handbook 2018
23
IQAir Air Visual – 2018 World Air Quality Report
24
National Institute of Health Sciences – A comprehensive study on prevailing air quality in India
25
Ministry of Environment & Forest – National Clean Air Program (NCAP)
26
TomTom Traffic Index – An objective measure of urban traffic congestion
27
Matthew Bart, Kanok Boriboonsomsin (November 2009) - "Real-World CO2 Impacts of Traffic Congestion”
23

study estimated that Bengaluru’s traffic congestion (the most severe in the world) cost the city 5% of its GDP in
2019.
The rise in traffic congestion must surely be addressed by reducing the number of vehicles on road at any given
point in time. Building toward such an outcome shall require innovative solutions leveraging technology and
improving the occupancy & utilization of existing vehicles on road.
3. Urbanization - Approximately 377 million people live in the 7935 urban centres of India (population
greater than 5,000 is classified as an urban centre). In 2011, there were three cities with more than 10 million
population and 5304 cities with more than 1 million population
28
. As India aspires to become a middle-income
economy (gross national income per capita between INR 72432 to INR 284760 per annum) the number of city
dwellers shall increase rapidly. It is estimated that 40% of India’s population will live in urban centres by 2030
compared to 33.5% in 2019. This translates to an urban population of 590 million by 2030
29
.
This rapid urbanization will result in the growth of megacities in India but at the same time will also result in
smaller cities growing in size. In 2015, India committed to building 100 smart cities. These “cities of the future”
will be built around the tenet of planned mobility that incorporates latest technologies. Electric vehicles and
electricity-based transit systems will drive mobility services in these cities.
In order to address transportation needs of growing urban centres, mass transit systems coupled with seamless
mobility platforms enabled through the use of technology will be required.
4. Accidents – India has 1% of the world’s vehicles but accounts for 6% of the world’s road traffic accidents
30
.
In 2018, a total of 4.7 lakh road accidents were reported in India with ~1.5 lakh citizens losing their lives and 4.7
lakh suffering non-fatal injuries
31
. The World Health Organization lists speeding as the most common cause of
road accident fatalities. The improvement in road infrastructure has led to an increase in average speed of
vehicles resulting in increased fatality counts.
Other common reasons for road accidents are driving under the influence of alcohol, non-use of protective
equipment such as helmets & seat-belts, distracted driving, unsafe road infrastructure, vehicles with low safety
ratings and inadequate enforcement of traffic laws
32
. While remedying causes such as non-use of helmets &
seat-belts is a cost-effective way of preventing fatal injuries, rectifying other causes is a costly affair. Fixing road
safety infrastructure along India’s vast road network as well augmenting the strength of the traffic police force
to ensure improved enforcement are costly projects with taxpayers bearing the burden of the entire cost. It is
estimated that India will be required to spend $109 billion over the next decade to halve the number of road
accident deaths
33
.
Therefore, reducing the number of accidents as well as fatalities in a cost-effective manner shall require
innovative solutions that are practical, in order to drive widespread adoption.

28
International Union for the Scientific Study of Population – Emerging issues from 2011 census data
29
McKinsey Global Institute – India’s evolving demography
30
World Health Organization (WHO) – Global Status Report on Road Safety 2018
31
Ministry of Road Transport & Highways – Road Accidents in India 2018
32
World Health Organization (WHO) – Fact Sheet, Road Traffic Injuries
33
World Bank – Delivering Road Safety in India : Leadership priorities and initiatives to 2030
24

A holistic view of the four externalities of increased motorization leads us to the emerging trends in mobility
that can be seen in India as well as globally. These trends are collectively shaping the transformation of
Automotive industry to be Autonomous, Connected, Electric and Shared (ACES).
1. Autonomous vehicles – While autonomous vehicles directly address the externality of road accidents,
they are enabled through rapid advances in technology over the last decade. It must be noted that autonomous
does not only refer to a self-driving vehicle but is rather a term for vehicles with certain automated features.
There are five levels of vehicle autonomy with the fifth level (L5) signifying a completely self-driven car without
the need for any human intervention. Lower levels of vehicle autonomy (L1 to L4) include features such as
forward collision warning, anti-skid braking (ABS), traction control, driver monitoring systems, pedestrian
collision warning, blind spot detection, automatic emergency braking, etc.
In India, currently only L1 autonomous vehicles are available. These L1 autonomous vehicles have factory fitted
features such as forward collision warning, blind spot detection, automatic parking assist, automatic emergency
braking and adaptive cruise control. These features are available in higher-end passenger cars as well as some
commercial trucks.
Externally fitted aftermarket devices also enable certain L1 features to be added to a vehicle. Such devices
promote safe driving behavior and also capture useful vehicle data that can prevent accidents and breakdowns.
These devices are especially useful to operators of large commercial vehicle fleets.
Level 2 (L2) autonomous vehicles control both steering and accelerating/decelerating. Here the automation
falls short of self-driving because a human sits in the driver’s seat and can take control of the car at any time.
Such vehicles are currently sold in United States and are slowly making their way into Europe.
2. Connected vehicles – Such vehicles can communicate with systems outside the vehicle allowing the
sharing of internet access and data with devices inside and outside the vehicle. Connected technologies include
heads-up displays, smart infotainment and telematics systems.
In India, connected passenger vehicles hit the market with full force in 2019. Sales numbers from 2019 and
2020 show that the best-selling passenger car models were those with connected features. Owing to the
acceptance of connectivity features by Indian consumers, several OEMs have incorporated these in their newer
models. However, the business model for monetization of connected vehicle features is still at an exploratory
stage.
Within commercial vehicles such as trucks, buses and taxis, connected devices enable improved fleet
management, vehicle tracking and also revamped business models. Aftermarket devices that can be fitted
externally allow old commercial vehicles to get upgraded to a connected vehicle. The market for such devices is
estimated to grow from $77 million in 2020 to $442 million by 2025
34
.
Recently passed regulations such as the Privacy and Data Protection Bill 2018 as well as AIS 140 (ARAI) pave
the way for widespread adoption of connected vehicles in the Indian market.
3. Electric vehicles – While electric battery technology has existed for many years, electric vehicles have
become affordable only recently due to falling battery prices. Between 2010 and 2019, Lithium-ion battery

34
PwC analysis
25

prices declined by 87%
35
. Given the challenges of climate change faced globally, governments have drafted
regulatory frameworks for the uptake of electric vehicles. In India, the following regulatory updates have been
made:
- Launch of the National Mission for Electric Mobility (NMEM) in 2011 to establish manufacturing capabilities
in the full range of electric vehicles
- Launch of FAME I & subsequently FAME II to incentivize the purchase of electric vehicles to promote initial
uptake
- Standards for electric vehicle charging infrastructure declared along with delicensing of electric vehicle
charging stations
- Several state governments have launched incentive schemes, roadmaps and regulations to promote the
manufacturing, sale and commercial use of electric vehicles within states
In FY20, 1.5 lakh electric two-wheelers, 600 electric buses and 3400 electric passenger cars were sold in
India
36
. Globally, 2.2% of all vehicles sold in 2019 were electric. Among individual countries, China leads in the
sale of electric vehicles. In 2019, 8 lakh electric vehicles were sold in the country. United States followed in
second place with the sale of 2.5 lakh electric vehicles
37
.
4. Shared Mobility – A transition to shared mobility can help address the externalities of pollution as well as
congestion. By increasing occupancy of passenger vehicles, India has the potential to reduce vehicle kilometer
demand by nearly 35%, accounting to 2000 billion kilometers in 2035. This, combined with more efficient
vehicle technologies, can cumulatively save above 1 gigatonne of CO2 through 2030
38
.Further, the shift will
enable efficient asset utilization and in the long run can also challenge private car ownership which is costly and
inequitable. India’s strong digital infrastructure uniquely positions the country to seamlessly adopt shared
mobility platforms and transit systems.
Several startups promoting carpooling, ride splitting and shared modes such as buses have been successful at
establishing large user bases in India. Further, micro-mobility startups, solving the last mile challenge have also
curated a loyal customer base by encouraging vehicle sharing. The strength of the shared mobility fleet in India
is estimated at 2 million vehicles in 2019.
2.7. Key Takeaways
India’s automotive industry has been growing at a healthy rate over the last 5 years and has witnessed
participation from large global and domestic automotive firms. The industry has reached a high degree of
localization across different sub-segments and has created a competitive automobile manufacturing as well as
auto-component manufacturing segment that not only caters to local demand, but also competes with global
countries in the export market. However, despite the strong fundamentals of the sector, India’s share in global
automotive trade is significantly low (<2%) in comparison to other competing nations. One of the key
challenges that curb automotive exports from India are the high cost of disabilities that the sector faces due to

35
BloombergNEF
36
Society of Manufacturers of Electric Vehicles (SMEV)
37
JATO – Global sales of pure electric vehicles
38
Niti Aayog – Enabling Shared Mobility in India
26

inefficiencies in the enabling infrastructure. Such disabilities add 5-8% to the total cost and thus limit the
competitiveness of the sector’s exports. A robust incentive mechanism that addresses the disabilities is required
to ensure a level playing field so that it can support higher globalization of the automotive sector.
In addition to the incentive mechanisms, Indian automotive firms must recognize the shifting trends with
respect to autonomous, connected, electric, and shared mobility. Investments in new technology and capability
aligned to these trends will ensure future competitiveness of Indian firms in comparison to their global
counterparts.
27

3. Global automotive incentive
schemes
For designing a robust incentive scheme to address the disabilities faced by the automotive sector, a scan of
global incentive policies is required to further our understanding of the different type of successful incentive
models adopted by competing countries. In this Chapter, we explore the key types of incentive mechanisms and
understand their operating model through select global examples.
3.1. Key incentive schemes/mechanisms deployed for
promoting automotive industry
Globally policy support is provided to Automotive OEMs and component suppliers across the value chain to
make domestic manufacturing cost competitive. Even so, most countries are willing to provide incentives for
typical expansion projects that meet the eligibility requirements for their respective programs. Depending on
the size of the investment and the number of new jobs to be created, incentives range from statutory incentives
- typically investment tax credits and employment tax credits - to discretionary incentives, offering cash and in-
kind services. The schemes can be categorized into 6 major buckets based on their mechanism/fiscal incentive
measures:
Fiscal Incentives/Cash Grants/Subsidies
Fiscal incentives in form of cash grants/corporate tax exemption to bring new investments to boost export and
bring down manufacturing cost. Ex- South Africa, Australia & Thailand
Production Incentives
Volume assembly/Production incentives aimed at increasing local sourcing. Ex- South Africa, & Australia
Subsidies on Vehicles/Auto components
Subsidies on the FOB value of vehicle and auto parts to be exported. Ex- Uruguay
Duty Drawback on Raw Material, CAPEX / Import Duty Exemptions
Tax exemptions on import of Raw Materials, Equipment & Machineries to be used for manufacturing of
export goods, including service providers and logistics. Ex-Turkey, Mexico
Low Cost Financing
Low cost loans at below market interest rates to subsidize auto and components exporter. Ex- Brazil
Subsidies on Manufacturing Consumables
Subsidies on Electricity, Natural Gas, Water, Credit, and Capital. Ex- Turkey

28

3.2. Global Incentive Schemes
Following are the key incentives/schemes available across countries to promote growth of automobile OEMs
and component suppliers by making them cost competitive.
3.2.1. Import tax/VAT exemptions – Mexico
39:
Mexico under its IMMEX program provides substantial tax exemptions on import of Raw Materials, Equipment
& Machineries to be used for manufacturing of export goods. The IMMEX program was launched in 2006,
replacing the Maquiladora and PITEX programs and continues till date as a pan industry program intended to
boost Mexico’s manufacturing output.
Key Details of Mexico’s Trade Incentives to boost Exports:
• Temporarily import goods that will then be used in the manufacture or repair of products, without
having to pay general import tax or the value added tax (VAT) of 16 percent on those imported goods.
• Within a set timeframe, six to twelve months depending on the nature of the finished product, the
finished manufactured product must then be exported, transferred to another IMMEX company in
Mexico.
• Applicable for Manufacturing, Service provider, Warehouse and Logistics company
• Applies to raw materials, components that are to be totally integrated into export goods, as well as
fuels, lubricants and other materials that might be used during the production process.
• Also, covers shipping containers, boxes, package labeling and the machinery, equipment and tools that
might be used in the production process.
• Qualification Criteria: With annual sales abroad of at least USD $500,000, or invoice exports
accounting for at least 10 percent of the total company invoices.
3.2.2. Volume assembly allowance/Production incentive – South
Africa
40:
The Automotive Production and Development Program (2013-end of 2020) was initiated to build local
manufacturing capacity and to meet the WTO requirements on subsidies, thereby improving international
competitiveness though a re-orientation of incentives towards local manufacturing capacity building.
Key highlights of the incentives:
Stable Import Tariffs
Import tariffs fixed at 25% for CBUs and 20% for CKD components
Vehicle Assembly Allowance:

39
Doing business in Mexico – PwC Report
40
South Africa Automotive Masterplan 2035
29

A volume assembly allowance which allows vehicle assemblers with a minimum plant volume of 50,000 per
annum to import a percentage of their component’s duty free (20% initially reducing to 18% after 3 years)
Production Incentive (PI):
An allowance for duty free import of vehicles or components, in the form of duty credits, aimed at raising
manufacturing value-added. Allowance calculated at 55% of value added in the SA supply chain (reducing
1% each year to 50% in 5 years). Incentive includes a special dispensation for vulnerable industries where
the allowance factor is higher (varying from 70-80% of value added).
Automotive investment allowance - South Africa:
Automotive Investment Allowance was initiated to stimulate investment in automotive sector - in particular:
• Investment in technologically advanced automotive production & new and replacement
models/components
• Increase plant production volumes
• Overall strengthening of the automotive value chain
Key details of the allowance program that is available to OEMs and component suppliers:
• A non-taxable cash grant paid over 3 years with minimum benefit calculated at 20% of qualifying
automotive investments for OEMs and 25% of qualifying automotive investments for suppliers
• An additional 5% and 10% of qualifying automotive investments- subject to Economic Benefit criteria
3.2.3. Low cost financing arrangements - Brazil
41:
Brazil provides low cost loans at below market interest rates to subsidize Brazilian exporters across different
sectors. Some of the key low-cost financing models:
a) Advanced Payment Under Export Document
Full or partial funding of working capital in national currency (BRL) to the exporter, made by a financial
institution, before the good is shipped. Its duration ranges from 180 days prior to the shipment of goods to 180
days after shipment and before payment by the importer.
b) Guarantee Fund for Competitive Promotion (FGPC)
The fund covers interest rate risk up to 70-80% of the loan value for exporting firms in Brazil. The interest rate
covers financial costs plus basic spread and risk spread. Thus, interest rate is normally LIBOR+1% (basic
spread) +risk spread.


41
Export incentives in Brazil and Korea within the WTO framework (Working paper)- Indian council for research on
international economic relations.
30

c) Preferential Export Financing
The financing is operated exclusively by Banco do Brazil, acting as Brazilian Treasury agent, in which it is
possible to finance up to 85% of export value in the negotiated INCOTERM. The repayment period varies from
60 days to 10 year.
3.2.4. Subsidy on export of vehicle and auto parts – Uruguay
42:
Uruguay provides substantial subsidy on the Fob value of vehicle and auto parts to be exported making it cost
competitive. Following are the incentives:
• Subsidy to vehicle and auto parts exports: 10% refund on the FOB value of vehicle and car parts
exports, through credit certificates issued by the Government, subject to meeting criteria of a National
Value Added of 20%.
• Reimbursement of VAT and indirect taxes applied to the purchase of supplies.
• Temporary Admission regime for imports of machinery and material supplies which are included in the
exported goods. Therefore, no taxes are applied to them (customs and others)
3.2.5. Favorable cost of doing business – Turkey
43:
Turkey through its Ministry of Trade supports promotion of trade by providing tailor made investment
incentives through:
• Rebating energy expenditures partially to the investor.
• Government can make capital contribution of up to 49% of the investment amount
• Gross wages of qualified personal to be employed for up to 5 years will be covered
• A certain portion of the interest to be paid for loans will be covered by the government
Global OEMs have utilized such incentives to establish manufacturing presence in Turkey to produce vehicles
for both domestic and export markets.
3.2.6. Fiscal incentives to boost exports – Thailand
44:
Thailand provides fiscal incentives to auto and components exporter to make it cost competitive for exports.
Some of the key incentives:
• Three-year exemption from corporate income tax, or a 6-year exemption for projects inside industrial
estates or promoted industrial zone with capital investment of more than THB10 million in industrial
zones or 7 years if the project succeeds in obtaining ISO 9000 or 14000 certification within 2 years of
start-up

42
Ministry of Industry, Energy and Mining (Uruguay)
43
Investment Incentives – Ministry of Trade (Turkey)
44
Thailand Board of Investment
31

• Approved projects qualify for a 5-year exemption from import tariffs on raw materials and essential
goods used in manufacturing exported products
• Reduction of 50% of import tariffs on machinery where the tariff is more than 10%.
3.2.7. Tariff elimination through FTAs – Thailand
45:
Thailand provides relief from high tariffs to auto and components exporter through the FTAs mode to make it
cost competitive for exports. Some of the key measures taken to reduce tariffs:
• Auto parts exported to ASEAN nations are subject to no tariff. Elimination of tariffs on commercial
vehicles, passenger cars, and their parts and accessories.
• Exemption of corporate income tax on the net profit and dividends derived from the promoted activity.
A 50% reduction of corporate income tax. Reduction of import duties for raw or essential materials.
• Exemption of import duty on machinery and material supplies which are included in the exported
goods. Additional 25% deduction of the cost of installation or construction of facilities.
3.2.8. Automotive transformation scheme - Australia
46:
Australia through its Ministry of Trade supports automotive OEM and auto component industry through
substantial financial assistance based on number of units manufactured. This is applicable to the exports
market as well. Key highlights of the financial assistance under Automotive Transformation Scheme:
• Financial assistance to motor vehicle producers of at least 30K units/year for local and export
consumption.
• Financial assistance to auto component producers to be used in at least 30K automobile units/year for
local and export
3.3. Key takeaways
After studying the major incentive schemes across the globe, it is certain that many countries have provided
automobile industry with incentives that help them reduce the cost of production and made their vehicles and
components more cost competitive in the global market.
Successful incentive policies have the following key common tenets:
Policy focus on supporting and attracting investments from large global companies to increase
domestic and export output
Performance orientation of incentive mechanisms to support companies that deliver outcomes aligned
to overall sectoral objectives
Consistency in policy and continuation of benefits for a mid-long duration
Focus on increasing local value addition to increase local economic activities and reap long term
economic benefits

45
Thailand Board of Investment
46
Automotive transformation scheme (Australia) – https://www.business.gov.au/Grants-and-Programs/Automotive-
Transformation-Scheme
32

4. Considerations and guidelines for
incentive scheme design
In Chapter 2, we understood the nature and quantum of cost disabilities faced by the automotive sector. A
robust incentive policy that supports the eligible participants through incentives in the range of 5-8% of product
value is required to even the playing field.
Further, we also reviewed the incentive policies of competing countries in Chapter 3 and identified key tenets of
a successful incentive policy – Promotion of large companies, performance orientation of the schemes,
consistency in policy over a substantial period of time, and focus on enhancing domestic value addition.
In this Chapter, we detail the key principles that will guide the incentive policy for the Indian automotive sector.
4.1. Key objectives of the incentive scheme
The automotive industry is a major economic contributor in India. The sector is responsible for ~50% of India’s
manufacturing GDP and has been a key growth driver for the economy. Today, many component makers are
Tier 1 suppliers to global auto OEMs and several India manufactured motor vehicles make their way to
international markets. This demonstrates that the Indian automotive sector has been an adopter of global
technological changes and other global standards. Yet, Indian auto-component exports comprise ~1% of global
auto-component trade. While motor vehicles exports from India in FY 2019 ($11.7 billion)
47
were roughly half
of what a developing economy such as Thailand exported ($20 billion) and only one-eighth of Mexico’s motor-
vehicle exports for the year ($87.8 billion)
48
.
Increasing globalization can be a significant hedge to the domestic market and drive sustainable
competitiveness of the sector generating additional jobs and investments. Given the Indian automotive
industry’s global standards, the sector can champion this strategy in India.
In spite of its healthy development Indian Automotive industry still faces several disabilities with respect to
competing countries. A robust incentive scheme can be one of the enablers to help overcome these disabilities
and make India more competitive furthering globalization of the Indian automotive industry.

A. Key objectives of the incentive scheme
The proposed incentive scheme has 3 key objectives:




47
Ministry of Commerce – Govt. of India
48
International Trade Centre
Globalization
1
Economic Output
2
Compliance with Local /
Global Regulations
3
33

1. Globalization – Enhance India’s globalization in automotive trade and double India’s automotive exports
in the next 5 years to achieve greater than $50 billion exports per annum
Doubling India’s export output in the auto sector will provide manufacturers (auto-components & OEMs) a
growth in scale which in turn should increase cost-competitiveness of Indian exports. It is imperative to note
that due to the structure of the automotive value chain, a growth in scale of either the OEMs or the auto-
component makers has a cascading effect on the value chain. Upstream suppliers (Tier II and Tier III) will
experience growth in scale as well, leading to fixed costs being distributed over a larger base and hence,
enhanced cost competitiveness. Through targeted incentives, the scheme aims to kick-start this virtuous cycle of
increased scale which would allow Indian automotive industry to enhance its competitiveness in domestic and
global markets.
2. Economic Benefit
2a. Attract investments and create jobs in the Indian automotive sector
An increase in industry output and exports will lead to risk diversification of Indian OEMs and component
makers as the revenue stream will be distributed over a larger number of geographies. This shall also enable
manufacturers to predict demand more accurately since volatility in demand patterns gets reduced. The natural
hedging of demand due to geographic diversity in revenue stream will ensure help increase capacity utilization.
Such a trend allows manufacturers to increase investments in fixed assets such as plant and machinery, thereby
spurring demand in other manufacturing related sectors of the Indian economy. It is estimated that
investments to the tune of $15-$20 billion are required to double the current output and exports market share
of manufacturers.
Job creation is also an immediate benefit of increased industry output. According to the India Skills Report
2018, roughly 12 million youth aged between 15 and 29 will enter the Indian labour force annually over the next
two decades
49
. Meanwhile, the International Labour Organization (ILO) pegs this estimate at 8 million youth
joining the workforce annually in the next decade
50
. Each additional vehicle produced by the automotive sector
not only adds to the direct manufacturing workforce but also to secondary and tertiary employment in areas
such as service centers, dealers, and logistics. It is estimated that an employment of 13 people for each truck, 6
people for each car, 4 people for each 3W and 1 person for each 2W is generated through local production
51
.
Such a high jobs multiplier is needed to generate jobs catering to the large influx of workers entering the
workforce annually.
2b. Growth in demand and economic value add for the domestic sector including MSMEs by leveraging the
economic multiplier
An economic multiplier is essentially an effect that causes gains in total output to be greater than the amount
spent to generate the gains. A direct result of job creation and investment enhancement is increased cash in the
hands of the general population which would lead to increased household income and hence, an enhanced
ability of consumption. As per Ministry of Micro, Small & Medium Enterprises, MSME’s employ > 11 Cr people

49
Confederation of Indian Industry (CII) - India Skills Report 2018
50
International Labour Organization (ILO) - Decent Work for Youth in India
51
Ministry of Heavy Industries and Public Enterprises, Annual Report 2018-19
34

in India
52
. An enhanced propensity for consumption is bound to benefit MSMEs in the country, allowing them
to generate capital.
3. Comply with local and global regulations
The incentive scheme should comply with local and global regulations and work within the applicable
international and national legal framework.
4.2. Guiding principles for automotive scheme design
The guiding principles detailed in this section shall provide a template to ensure that all scheme components
are designed keeping in mind the three objectives highlighted above. These principles provide a framework
within which elements of the scheme are designed.
Principle 1
Focus on Global Champions
Existing global promotion schemes focus on a large number of companies, however, many of these companies’
lack scale, have limited access to target markets and are constrained by their ability to invest and undertake the
risk required for rapid growth. Therefore, a change in strategy is needed to focus on promoting larger firms that
have the scale, competitive ability and management capabilities to be a global champion. Such companies must
have strong market access, existing channel and customer base and export revenues. Large companies will buy
components from numerous suppliers, including small and medium enterprises (SMEs). This will also have a
multiplier effect on employment and eventually increase the overall competitiveness of the Indian automotive
sector.
The target global champions should display the following characteristics:
• Economies of Scale/size of operations
• Access to global markets and an existing market base
• Commitment to consistent growth
• Capability to invest for growth
Principle 2
The proposed incentive scheme follows the below mentioned equality principles:
• Incentives are offered without discrimination to companies incorporated in India irrespective of their
ultimate ownership being Multinational or Indian
• Incentives are provided to encourage manufacturing growth and support deeper globalization of the
Indian automotive industry.


52
Ministry of Micro, Small & Medium Enterprises – (https://pib.gov.in/Pressreleaseshare.aspx?PRID=1579757)
35

• Incentives have also been recommended to offset disabilities with higher cost of certain factors of
production (e.g., Logistics Cost, cost of capital, power cost, higher transaction cost), where limitations
in the Indian infrastructure disadvantages manufacturers based in India in comparison to their global
counterpart. As discussed in section 2.4, such disabilities amount to 5-8% of additional cost for Indian
manufactured goods. In order to balance the inequality, incentives have been provided on the
sales value of Indian manufactured goods
Principle 3
High value thresholds – Incentives to global champions that will deliver high value growth
The scheme will support global champions that deliver consistent value growth throughout the program.
Incentives will be linked to meeting growth thresholds and high growth performance will be supported with
higher magnitude of incentives.
In Section 2 we saw that India’s OEM exports are skewed toward high volume low value products. The graphic
below highlights this:
Figure 9 - High volume, Low value performance of India's OEM exports

Source: SIAM
With the increasing maturity of Indian automotive industry, share of higher value vehicles (executive and
luxury sedans, large size SUVS, >250 cc bikes etc.) has started growing over the last few years. In FY 2017, 6.8
lakh bikes greater than 250cc were sold in India, accounting for 3.8% of all 2-wheeler sales. In FY 2019, this
number increased to 8.4 lakh units accounting for 4% of all 2-wheeler sales
53
.
One of the objectives of the incentive scheme is to continue to the development of the automotive industry with
promotion of high value products so as to enhance the overall maturity of the entire value chain. The eligibility
criteria, annual thresholds, incentive structures of the schemes have been designed to reward such high value
performance rather than high volume performance. It is expected that automotive participants looking to

53
Society of Indian Automotive Manufacturers – Month Flash Reports (March 2018, March 2019)
36

benefit from the scheme will focus on producing higher value products so as to meet the defined incentive
thresholds.
The three guiding principles will provide a framework to design an incentive scheme that can help the program
achieve the intended objectives. The guiding principles also act as a framework to identify beneficiary segments,
characterize ideal beneficiary firms, and to define mechanisms that connect the scheme objectives to the
government outlay.
37

5. Automotive incentive scheme
framework
As discussed in the previous chapter, focus of the automotive incentive policy should be to support large
companies that have the scale, global market access, and investment capabilities to become a global champion.
The global champions need to deliver consistent high value growth and achieve global scale so as to enhance the
globalization of the Indian automotive sector.
In this Chapter, we detail out the Automotive Global Champion Scheme for different segments of the
automotive industry, specifying the eligibility criteria, establishing the tenure of benefits, and elaborating the
operating mechanisms of the schemes.
5.1. Overview of proposed incentive schemes
Overview of Global Champion Scheme:
Automotive Global Champion scheme is designed to support companies that have the scale, competitiveness
and management capabilities to be a global champion. Under the Automotive Global Champion Scheme
(AGCS), 4 schemes have been designed to promote growth and support expansion:








5.2. Eligibility Criteria for Global Champion
Eligibility Thresholds:
Auto OEMs and Auto-component companies will need to meet the following criteria to qualify as global
champions and receive benefits under the Automotive Global Champion Scheme. The minimum criteria below
ensure the eligible global champions have sufficient scale, global market access and investment capability.
‘Global
Sourcing’
Incentive
Scheme
‘Champion OEM’
Incentive
Scheme
‘Production
linked’ Incentive
Scheme
‘Component
Champion’
Incentive
Scheme
1 2 3 4
Target
Segment
International
Purchase offices of
Indian / Global
OEMs & Tier-1
Suppliers
Vehicle
Manufacturers
OEMs and Auto-
component
companies
Auto-component
companies
Each eligible global champion can apply and be approved for a maximum of
3 incentive schemes at the time of application
38

Table 12 – Eligibility Criteria for Global Champions
A Group Company will cover holding & subsidiary companies where one has significant control over financial
decisions even if shareholding is less than 50%. - E.g. JV companies
Base year for eligibility of the scheme will be considered as financial year April 1, 2018 to March 31, 2019
5.3. Timeline and duration of the schemes
Timeline for Application
• The Scheme shall be open for applications for a period of 24 months from the announced start date of
the scheme
• After due evaluation of the application, qualified applicants will be approved as a ‘Global champion’ for
the scheme, subject to meeting the eligibility criteria
• However incentive will be payable only upon achieving targeted revenue growth goals as specified
under each of the 4 schemes.
• No application will be considered post 24 months from the date of announcement, unless reopened for
all applicants by the competent authorities
Tenure of Benefits
• An approved applicant will be eligible to receive the benefits for 5 years from the date of approval of
the application.
• The approved applicant will be eligible to receive the benefits subject to meeting the annual
performance conditions as defined under the schemes
Maximum Cap for Benefits
• A cap of INR 8,500 Crore across 5 years (~15% of total projected incentive outlay) is proposed on
the maximum benefit a single company can avail under the automotive global champion schemes
• This cap will ensure that the incentives are not distributed disproportionately to any single company
legal entity and the benefits of the scheme are passed on to a broader set of industry participants
Eligibility Criteria Auto OEM Auto-Component
Revenue from
Outside India
• Minimum of INR 1,000 Crore
(base year)
• Minimum of INR 200 Crore (base
year)
Revenue
• Global group* revenue size of
minimum INR 10,000 Crore in
base year
• Global group* revenue size of
minimum INR 1,000 Crore in base
year
Investment
• Global Investment in fixed assets
(gross block) of INR 3,000 Crore
as of 31.03.2019
• Global Investment in fixed assets
(gross block) of INR 300 Crore as of
31.03.2019
39

5.4. Application & Disbursement Process
Application process for the Automotive Global Champion Scheme could follow the below:
• Application will need to be submitted in prescribed format with the required corporate profile, business
details, 5 year business plans and required financial information to justify qualification as a Global
champion
• The application should also specify the schemes under which the applicant is seeking to gain incentives
from the government. An eligible applicant can apply to a maximum of 3 out of the 4 schemes
• Eligible applications should be appraised for completion, compliance with criteria, and supporting
proofs should be reviewed. A confirmation to be provided to the applicant once application is reviewed
and found to be compliant with the criteria
• Step 1: Companies to submit an online application along with financial & supporting documents that
are audited by a Chartered Accountant
• Step 2: Program Management agency (PMA) to acknowledge the application upon initial scrutiny
• Step 3: Recommendation by PMA to approval committee
• Step 4: Evaluation of Application by an Empowered committee (EC)
• Step 5: Upon approval or rejection PMA to issue letter communicating the outcome of the application
• Above process to be completed in a time bound manner within 60 days of the receipt of the application
• EC should be an inter-ministry empowered team

Disbursement process for the Automotive Global Champion Scheme could follow the below:
• Step 1: Companies need to submit their annual claims under the respective schemes along with audited
financial statements / proof of achievement of target criteria by June 30 of each year.
• Step 2: PMA to acknowledge after Examination and assessment of claim and incentive eligibility
• Step 3: PMA to make recommendation to EC based on review of the facts presented
• Step 4: EC to approve or reject the claims and same to be communicated to the applicant
• Step 5: Annual payment to be initiated through bank transfer upon completion of pre-disbursal
processes
• Above disbursement process should be completed within 60 days of receipt of disbursement application

40

5.5. Scheme details
5.5.1. Scheme #1: ‘Global Sourcing’ incentive scheme
Overview:
• India’s share of global automotive trade is less than 2% and highlights a significant opportunity for
automotive exports and imports growth
• Global Sourcing incentive scheme is aimed at incentivizing International Purchase Offices (IPO) to
increase sourcing of automotive components from India and to grow India’s contribution in the process
of globalization within the Automotive industry
• The global purchase offices help increase the global reach of Indian component suppliers (as well as
local subsidiaries of global suppliers).
• Global or international purchase offices (IPO) are procurement groups of Automotive OEMs and Tier-1
suppliers that focus on purchase of components from India for their global manufacturing plants. These
entities may be part of Indian owned entities as well as Multinational companies.
• The role of these organizations is to develop suppliers in India and facilitate growth in purchase of
components from India
• Currently, more than 40 OEMs and Tier-1 suppliers have their International purchase offices in India
• The scheme can enable multi-fold growth of the Indian auto-component sector and generate
employment, attract investments and increase industry globalization
Target Segment – International Purchase Offices (IPO):
International purchase offices in India primarily play three roles:
Supplier Development – IPOs identify, onboard and develop local supplier base in India and enable them to
integrate with the global supply chain. They also conduct regular audits and recommend capability
development plans for the supplier
Managing Purchases – IPOs manage the purchase process of auto-components for global plants and
coordinate with Indian suppliers for submission of bids to global tenders
Balancing Purchase – Balancing sourcing mix from different countries / region to optimize cost of sourcing,
purchase risk and meeting delivery schedules

41

Figure 10 – Role of International Purchase Offices

Eligibility:
Eligible global champions who meet the below criteria will qualify for incentives under the Global Sourcing
Scheme:
• International Purchase offices, in India, of Global and Indian automotive OEMs and components,
sourcing from India and providing orders for global plants will be eligible to apply for the scheme
• Purchases done directly or indirectly by eligible global champions on behalf of global customers
(including holding/global company) can qualify as deemed purchases – However, only purchase of
automotive components/ aggregates/ CKD/SKD kits will qualify for incentive. Global champions who
are purchasing on behalf of other global companies will need to provide contractual documents that
verify their authority to undertake such purchases for their customers.
• Growth incentive applicable on increase in ‘eligible purchase value’. The definition of eligible purchase
value for a year = Purchase value of Components for Export + Purchase value of Components for
Domestic (Indian consumption) or 1.25 times Purchase value of components for exports; whichever is
lower. I.e. Ratio of incentives payable on purchases for exports and domestic should be at least 80:20
(export purchase share of incentives can be greater than 80%)
• Incentives applicable on both components sourced from Indian suppliers as well as imported from
international suppliers. However, total purchase should have a maximum of 20% imported purchase to
qualify for the incentive
• All automotive-component purchases made by IPOs from India (including parts manufactured as well
as bought out by their component suppliers) for exports are eligible for the incentives under the scheme
Proposed Scheme Incentive Mechanism
• As per the proposed scheme, eligible applicants will be entitled to receive incentives (% benefit) on the
increase in eligible purchase value of components, as compared to the base year
• As a key guiding principle of the scheme, global champions need to deliver consistent absolute growth
to receive the applicable benefits. The quantum of growth, irrespective of current IPO size, needs to be
significantly large in order to contribute to the overall growth vision envisaged for the Automotive
Global Champion Scheme.
• A cumulative growth threshold has been proposed to allow the participants to carry forward their above
average growth performance in any given year to the subsequent years, so as to counterbalance any dip
42

in performance in the subsequent years due to external environment / fluctuations. Growth threshold
defined below:
Table 13 – Growth Thresholds for Global Sourcing Scheme
• A company needs to meet or exceed cumulative increase in eligible purchase value for each year as
specified above
• In case the company fails to meet the threshold in any given year (e.g., INR 60 Cr in Year 1), it will not
receive any benefits for that year. However, it will still be eligible to receive the benefits under the
scheme in the next year if it meets the cumulative growth threshold defined for that year
• In addition to the above growth threshold as defined in table 13, Companies will also have to meet the
minimum annual growth requirement of 8% Year on Year increase in eligible purchase value (i.e.8%
increase in eligible purchase value in every year over the previous year) to be eligible to receive the
benefits
• The magnitude of the incentive will depend upon the magnitude of increase in eligible purchase value
over the base year. The incentive mechanism rewards companies that achieve high absolute growth, as
measured over base year, by progressively providing a higher incentive %.
• Companies that achieve a target cumulative increase in eligible purchase value of INR 2,000 Crore
across the duration of the program, will receive an additional incentive, over and above the specific
slabs, on any increase in eligible purchase over the base above the target cumulative increase. This
additional incentive is to support high growth achievers in their bid to pursue global scale
• The incentive slabs are defined in table 14 below:

Year Cumulative Increase in Eligible Purchase Value (INR Cr) from Base Year
Year 1 60
Year 2 150
Year 3 325
Year 4 700
Year 5 1200
43

Table 14 – Incentive Slabs for Global Sourcing Scheme

5.5.2. Scheme #2:‘Champion OEM’ incentive scheme
Overview:
• An incentive scheme targeted to address the disabilities faced by OEMs in India and even the global
playing field
• The Champion OEM Incentive scheme is a ‘sales value linked’ scheme, targeting vehicles/Completely
Knocked Down (CKD)/Semi Knocked Down (SKD) kits, aggregates & components/ spare parts
produced by OEMs in India to boost the manufacturing output, increase scale of operations and attract
large investments in the sector
Eligibility:
Eligible global champions who meet the below criteria will qualify for incentives under the Champion OEM
Scheme:
• Indian vehicle manufacturers as well as Indian subsidiaries of Global vehicle manufacturers with
manufacturing capabilities in India and who have qualified as global champions will be eligible to apply
for the incentive scheme
• Incentives applicable on all vehicles, CKD/SKD kits, vehicle aggregates & components/ spare parts of
motorized 2Ws, 3W, passenger vehicles, commercial vehicles and tractors.
• Growth incentive applicable on increase in ‘eligible sales value’. The definition of eligible sales value for
a year = Export sales + domestic sales of vehicles / kits /aggregates/components or 1.25 times export
sales; whichever is lower. I.e. Ratio of incentives payable on exports and domestic should be at least
80:20 (export share of incentives can be greater than 80%)
• A Maximum of 20% import content will be allowed on eligible sales value. Sales not meeting this
criterion will not be eligible to receive the sales incentives
Increase in Eligible Purchase value
over Base Year (INR Cr) for a given
year
Incentives % on Increase in
Eligible Purchase value
Maximum
Incentive
(INR Cr)
<=100 4% 4
100 – 250 5% 7.5
251 – 500 6% 15
>500 7%
Additional Incentive on Cumulative
increase in eligible purchase of INR
2,000 Cr over 5 years
2%
44

Proposed Scheme Incentive Mechanism
• As per the proposed scheme, eligible applicants will be entitled to receive incentives (% benefit) on the
increase in eligible sales of vehicles, CKD/SKD kits, vehicle aggregates, and components/ spare parts
manufactured in India, as compared to the base year.
• Companies will need to deliver consistent absolute eligible sales growth to receive the applicable benefits.
The quantum of growth, irrespective of current OEM size, needs to be significantly large in order to
contribute to the overall growth vision of the automobile sector
• A cumulative growth threshold (e.g., INR 100 Cr in year 1, INR 350 Cr in year 2 & so on) has been proposed
to allow the participants to carry forward their above average growth performance in any given year to the
subsequent years, so as to counterbalance any dip in performance in the subsequent years due to external
environment / fluctuations. Growth threshold defined below:
Table 15 – Growth Thresholds for Champion OEM Scheme
• In case the company fails to meet the threshold in any given year, it will not receive any benefits for that
year. However, it will still be eligible to receive the benefits under the scheme in the next year if it meets the
cumulative growth threshold defined for that year
• In addition to the above growth threshold as defined in table 15, companies will also have to meet the
minimum annual growth requirement of 8% YoY increase in eligible sales value (i.e.8% increase in eligible
sales value in each year as compared to previous year) to be eligible to receive the benefits
• The magnitude of the incentive, as defined in table 16, will depend upon the magnitude of increase in
eligible sales over the base year. The incentive mechanism rewards companies that achieve high absolute
growth, as measured over base year, by progressively providing a higher incentive % (starting from 4% and
increasing to 7% for increase in eligible sales of >INR 1000 Cr from base year).
• Companies that achieve a target cumulative increase in eligible sales of INR 6,000 Cr across the duration of
the program, will receive an additional incentive.
• One of the key determinants of global competitiveness in the Automobile sector is the continual investment
in R&D. In order to support companies that invest in carrying out research and development activities in
India, an additional incentive will be provided on any increase in eligible sales over base year, over and
above the specific incentive slabs, contingent on meeting a R&D spend criteria.
Year Cumulative Increase in Eligible Sales Value (INR Cr) from Base Year
Year 1 100
Year 2 350
Year 3 850
Year 4 1700
Year 5 3000
45

Table 16 – Incentive Slabs for Champion OEM Scheme
Increase in Eligible Sales over Base
Year (INR Cr) for a given year
Incentives on Increase
in Eligible Sales
Max. Incentive
(INR Cr)
<=500 4% 20
501-750 5% 12.5
751 – 1000 6% 15
>=1001 7%
Additional Incentive on Cumulative
increase in revenue of INR 6,000 Cr over 5
years
Additional 1% on increase
in eligible sales value over
base year

For companies that spend >=2% of net
sales on R&D in India (including global
R&D centers in India) in a given year
Additional 1% on increase
in eligible sales value over
and above the applicable
slab


Eligible sales for any year = Export sales + domestic sales of vehicles / kits /aggregates, components or 1.25
times export sales, whichever is lower
5.5.3. Scheme #3: ‘Production Linked’ incentive scheme
Overview:
• The Indian automotive industry suffers from cost disabilities such as high logistics cost, inadequate
availability of quality power, high capital costs, insufficient focus and capability in R&D and product
development
• Policy intervention aimed at leveling the playing field and improving the capability of the sector is
critical to integrate with global value chains and to boost local manufacturing and investments
• The production linked incentive scheme aims at growing India’s contribution in the process of
globalization within the Automotive sector by addressing the disabilities faced by Indian companies
• It is a sales value linked incentive scheme open to eligible Automotive OEMs and Auto-component
players that will be provide incentives subject to meeting certain sales threshold
Eligibility:
• All Global champions (vehicle as well as component manufacturers) with manufacturing facilities in
India are eligible to apply for the scheme
Proposed Scheme Incentive Mechanism
• As per the proposed scheme, eligible applicants will be entitled to receive incentives (% benefit) on sales
value for components, vehicles, aggregates, CKD/SKD that are produced in India. Unlike other schemes,
46

this scheme will provide incentives on the entire sales value (not just increase in sales) in a year as per the
applicable slabs that are defined below
• Companies will need to deliver consistent absolute eligible sales growth to receive the applicable benefits.
The quantum of growth, defined separately for OEMs and for Auto-components to account for difference in
scale, needs to be significantly large to receive incentives under this scheme
• A cumulative growth threshold has been proposed to allow the participants to carry forward their above
average growth performance in any given year to the subsequent years, so as to counterbalance any dip in
performance in the subsequent years due to external environment / fluctuations. Growth threshold defined
below:
Table 17 – Growth Thresholds for Production Linked Incentive Scheme

* Long-distance sales is defined as total sales value for products transported over a distance greater than 3,000
km.
• Achieving the ‘Long distance sales value’ growth threshold is a qualifying criteria. While the actual incentive
payable will be calculated based on the distance slab in Table 18
• In case the company fails to meet the threshold in any given year, it will not receive any benefits for that
year. However, it will still be eligible to receive the benefits under the scheme in the next year if it meets the
growth threshold defined for that year
• In addition to the above growth threshold as defined in table 17, companies will also have to meet the
minimum annual growth requirement of 8% YoY increase in long-distance sales value (i.e.8% increase in
long-distance sales in each year as compared to the previous year) to be eligible to receive the benefits
• Once the above-mentioned growth criterion is met, the magnitude of incentives will be calculated as
per the distance travelled by the product, from ex-factory to point of sale, going up to 4% of sales value for
>5000 km sales. A higher % incentive for more distance travelled to offset higher costs due to inefficiencies,
warehousing costs, high lead time of logistics and customs processes
For OEMs For Auto-component Mfg.
Year
Cumulative Increase in ‘Long-distance’
Sales Value (INR Cr)
Cumulative Increase in ‘Long-
distance’ Sales Value (INR Cr)
Year 1 100 25
Year 2 350 75
Year 3 850 175
Year 4 1700 350
Year 5 3000 550
47

Table 18 – Incentive Slabs for Production Linked Incentive Scheme
Distance Travelled by Product % Incentive on sales value
<=2000 km 0%
2001-3000 km 0.5%
3001 – 5000 km 2.5%
>5000 km 4.0%

• In order to receive incentives under this scheme, eligible global champions will need to submit a breakup of
their sales as per the table above. This break-up of sales value by distance travelled of the product needs to
be certified by a Chartered Accountant.
• Distance considered will be the actual distance travelled by the shipment rather than Aerial distance.
Documentation to support this data must be made available during the validation process
• Actual distance would mostly cover road distance in case transportation is inland or nautical / ship distance
in case of overseas shipment.
• In case of emergency shipment by air the actual distance travelled would be considered
5.5.4. Scheme #4: ‘Component Champion’ incentive scheme
Overview:
• The ‘Component Champion’ Incentive scheme is aimed at identifying and incentivizing auto-
component champions that can achieve global scale of operations and become ‘global champions’ for
the auto-component sector
• The scheme is a sales value linked incentive scheme that will incentivize eligible auto-component
players on the increase in sales of manufactured goods from India
Eligibility:
• Global Champions that are exclusively in automotive component manufacturing including domestic
owned and Multinational companies are eligible to apply
• Growth incentive applicable on increase in eligible sales value, where eligible sales for a year = Export
sales + domestic sales of components or 1.25 times export sales; whichever is lower. i.e. Ratio of
incentives payable on exports and domestic should be at least 80:20 (export share of incentives can be
greater than 80%)
• Maximum import content allowed at 20% of value of components
Proposed Scheme Incentive Mechanism
• As per the proposed scheme, eligible applicants will be entitled to receive incentives (% benefit) on the
increase in eligible sales of components manufactured in India, as compared to the base year
48

• Companies will need to deliver consistent absolute eligible sales growth to receive the applicable benefits.
The quantum of growth, irrespective of current auto-component manufacturer size, needs to be
significantly large and needs to meet/exceed INR 25 Cr in Year 1, INR 75 Cr in Year 2 and so on.
• A cumulative growth threshold has been proposed to allow the participants to carry forward their above
average growth performance in any given year to the subsequent years, so as to counterbalance any dip in
performance in the subsequent years due to external environment / fluctuations. Growth threshold defined
below:
Table 19 – Incentive Slabs for Component Champion Scheme







• In case the company fails to meet the threshold in any given year, it will not receive any benefits for that
year. However, it will still be eligible to receive the benefits under the scheme in the next year if it meets the
growth threshold defined for that year
• In addition to the above growth threshold as defined in table 19, companies will also have to meet the
minimum annual growth requirement of 8% YoY increase in eligible sales value (i.e.8% increase in eligible
sales in each year over the previous year) to be eligible to receive the benefits
• The magnitude of the incentive will depend upon the magnitude of increase in eligible sales over the base
year. The incentive mechanism rewards companies that achieve high absolute growth, as measured over
base year, by progressively providing a higher incentive %.
• In order to support companies that invest in carrying out research and development activities in India, an
additional incentive will be provided on any increase in eligible sales over base year, over and above the
specific incentive slabs, contingent on meeting a R&D spend criteria.

Year Cumulative Increase in Eligible Sales Value (INR Cr)
Year 1 25
Year 2 75
Year 3 175
Year 4 350
Year 5 550
49

Table 20 – Incentive Slabs for Component Champion Scheme
Increase in Eligible Sales over
Base Year (INR Cr) for a given
year
Incentives on
Increase in Eligible
Sales Value
Max. Incentive
(INR Cr)
<=100 4% 4
101-250 5% 7.5
251 – 400 6% 9
>400 7%
Additional Incentive on Cumulative
increase in revenue of INR 1000 Cr
over 5 years
1%
For companies that spend >=1% of
net sales on R&D in India (including
global R&D centers in India) in a
given year
Additional 1% on increase
in eligible sales value over
and above the applicable
slab


50

6. Economic impact of incentive
schemes
The economic impact of the proposed scheme has been modelled by establishing links between economic
indicators, charting the course of incentives provided for the scheme. All inputs to the model have been
computed from historical industry data and accuracy of relationships among indicators has been validated
through back-testing. Assumptions in the model, wherever necessary, have been determined through inputs
from industry stakeholders and analysis of sensitivity of output to the chosen assumptions has been duly
conducted.
Basis the most relevant inputs, assumptions and scenarios, the impact of the proposed incentive scheme is
computed.
6.1. Globalization impact
The primary aim of the incentive scheme is to enhance India’s integration with the global automotive sector and
double automotive exports from India in 5 years. The following waterfall chart highlights the contribution of
each segment in augmenting the exports value from India. All figures are in billions of US Dollars.
Figure 11 – Segment-wise Estimated Exports Increase

Growth in automotive exports to $54 billion within 5 years implies a CAGR of 15%. This growth can be
contrasted to the growth in exports between FY 2016 and FY 2019, which recorded a CAGR of 8%. The largest
contribution to growth in exports is delivered by the OEMs. This can be attributed to the fact that OEMs have
high-value exports which are contributing heavily to the overall increase in exports.
6.2. Government Incentive
With a view of expanding the automotive industry’s integration with global trade, the incentive support
required across the duration of the Automotive Global Champion Scheme is estimated to be INR 57,042
Crore.
The magnitude of estimated incentive outlay for each year has been highlighted in table 21:
27
50-54
6
11-13
6-8
Current Exports Global Sourcing OEMComponents Targeted Exports - 5
Years
Indian Automotive Export –Estimated for 5 Years from Now (USD billion)
51

Table 21 – Incentive in INR Cr by Year
S. No. Year
Total Incentive
(INR Cr.)
1 Year 1 4,477
2 Year 2 7,109
3 Year 3 10,274
4 Year 4 13,931
5 Year 5 21,252

Total 57,042

6.3. Economic impact
The second objective of the global champion incentive scheme is to attract investments and create jobs in the
automotive sector. The table below summarizes the jobs created, the estimated government tax collections and
investments under the Automotive Global Champion Scheme
Table 22 - Investment & Employment impact of incentive schemes
S. No Impact Area
Value
(5 Years)
1 Investments – INR Cr 102,722
2 Job Creation – Lacs 58.8
3 Increase in Direct Tax Collections – INR Cr 16,525
4 Increase in GST Collections* – INR Cr 12,686

*GST collections estimated only on the additional domestic industry growth due to the increase in industry
maturity as a result of the Automotive Global Champion Scheme
The maximum employment generation is attributed to the growth of OEM exports. OEMs have a high job
multiplier (currently ~1x10) in India. This means that significant employment is generated along value chain as
well as in associated areas such transport services, etc. The high multiplier for OEMs is also indicative of a high
value addition per employee in auto OEMs. The multiplier effect is captured in following tables highlighting
jobs created along the value chain.

52


Table 23 - Jobs created along the automotive value chain
Employment Generation
OEM Tier-1 Tier-2 Tier 3/4
Ancillaries /
Other
Total
329,843 949,826 883,179 1,310,265 2,411,308 5,884,421

An increase in exports shall also drive up revenue* for firms along the value chain as order books swell. The
table below captures revenue increase across 5 years for value chain players:
Table 24 – Cumulative Revenue increase along the automotive value chain – 5 Years
* Revenue increase is cumulative addition of increase in revenue across 5 years with respect to the base year.
With enhanced scale, employment and additional capital, firms along the value chain become cost competitive
by leveraging economies of scale and investing in superior technology. A larger capital base also augments the
credit capacity of a firm, allowing investments in Research & Development. Such investments become
imperative for the industry to become globally competitive and excel in the long term.

Cumulative Increase in Revenue (INR Cr) for 5 Years
OEM Tier-1 Tier2 Tier 3/4 Ancillaries / Other
215,893 324,454 231,617 220,683 115,789
53

6.4. Impact on MSMEs
Micro, small and medium enterprises (MSME) form a critical backbone of the automotive value chain in India.
As per industry estimates, more than 75% of the auto-component suppliers in India fall under the category of
MSME
54
. With the definition of MSMEs being revised by the Government of India (Medium enterprises with
turnover less than INR 250 Crore & investment in plant & machinery/equipment <INR 50 Crore) , a greater
number of automotive value chain participants are expected to fall under the MSME category.
Thus, it is imperative that the benefit of any incentive scheme is also passed on to the MSME automotive sector.
In the proposed scheme, increase in competitiveness of the global champions will directly benefit the MSME
sector as they will receive more orders and will experience a boost in revenues. Increase in revenues can be
invested by the owners/ proprietors of these MSME firms to enhance their capability and capacity.
The table below highlights the estimated share of MSMEs across various Tiers as well as the expected increase
in revenues for each tier as well as MSMEs as a category:
Table 25 – Cumulative Revenue increase for MSMEs – 5 Years

Cumulative Increase in Revenue (INR Cr) for 5 Years
Company Category OEM Tier-1 Tier-2 Tier ¾
Ancillaries /
Other*

215,893 324,454 231,617 220,683 115,789
Large (>250 INR Cr
revenue) %
100% 100% 80% 40% 40%
MSME (<250 INR Cr
revenue) %
0% 0% 20% 60% 60%
Cumulative Increase in
revenue for MSMEs – INR
Cr

46,323 132,410 69,473
Cumulative Increase in
revenue for MSMEs
~INR 200,000 - 248,206 Crore

It is estimated that MSMEs, shall gain ~INR 200,000 to INR 248,000 crores of incremental revenue through
the Automotive Global Champion scheme. Such increases in revenue not only help stabilize the jobs of workers
in these firms but also enable MSMEs to avail cheaper credit. Such credit shall enable expansion and hence,
more jobs in the long term.

54
ET Auto - https://auto.economictimes.indiatimes.com/news/auto-components/auto-msmes-battle-to-breathe-amid-
lengthy-lockdown/75366869
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MSME organizations also contribute significantly the employment generation within the automotive sector.
These firms typically deploy labour-intensive manufacturing technology and give employment to a large
number of skilled and unskilled workers.
It is estimated that the proposed incentive scheme will create approximately 24 lakh jobs across the duration
of the scheme. This demonstrates the power of the multiplier effect of the automotive industry and further
highlights the need to support & boost the competitiveness of the sector.


55

7. Scheme Implementation Suggestions
This section provides certain suggestions that would support a successful roll-out of the scheme and will
streamline its operations.
7.1. Applications assessment, baselining & benefits
disbursement
• A thorough appraisal of applications for the Automotive Global Champion Scheme should be carried out by
the appointed nodal agency responsible for implementing the scheme
• Appraisal process should include validation of financial reports, declarations & disclosure of group holding
structure, legal registration documents by a reputed CA firm of sufficient scale & size
• Baselining of purchase value, export sales, domestic sales, eligible sales value, and long-distance sales value
for calculation to be based on financial year 2018-19. Baselining to be based on CA certified documents and
should include capturing information on export & domestic sales of all relevant sister entities of any
applicant. While the incentive estimation will be based on the sales / purchase value of approved legal
entity, a thorough baselining of other related entities will ensure greater transparency while assessing
claims of the applicants during the benefits disbursement process
• Benefits disbursement process should include a thorough validation of applicants claim through a certified
CA agency. Incentives to be disbursed only after the applicant has achieved the performance thresholds laid
out in the individual incentive schemes
7.2. Scheme Performance Review & Continuous
Improvement
• A technical committee comprising of representatives from Niti Aayog, DHI, Ministry of Commerce,
industry associations (ACMA, SIAM) and independent industry experts / consultants should be formed to
monitor the progress & conduct regular reviews of the Automotive Global Champion Scheme
• The committee should recommend amendments in the scheme guidelines to the nodal agency based on the
periodic reviews, industry feedback & grievances to ensure successful achievement of scheme objectives
• Any changes in thresholds / eligibility criteria should be approved only after they have been reviewed and
approved by the technical committee


56

Appendix:
Cost Structure of Automotive OEMs & Auto -Component Players in India
The charts below captures major cost heads of manufacturers in the Indian automotive manufacturing setup.
The analysis considers top OEMs and auto-components manufacturers.

Figure 12 – Cost Structure of Leading Automotive OEMs & Auto-Component Players


Material costs account for more than 60% of sales value for both OEMs & Auto-component players and is the
largest cost bucket. OEMs & Auto-component players undertake continuous improvement initiatives to
optimize material costs through best-in class sourcing practices and design & yield improvement initiatives.
Employee and manpower related expenses are the 2
nd
largest cost bucket for Automotive OEMs & component
players. The wage rates in India have been increasing annually to account for inflation increases as well as to
reduce the disparity among the general populous. In order to counter the increase in wage rates, automotive
players have invested in productivity improvement initiatives including increase in automation & digitalization
that can enhance the overall productivity of operations.
As mentioned in Chapter 2, Freight, Power & Fuel and Finance costs can be directly impacted through
government policies and incentives. These costs can comprise 4-6% of net sales value at an aggregate level but
can be much higher for orders that are exported out of India. Infrastructural and policy improvements
undertaken by the central and state governments can have a significant impact on optimizing these costs for the
automotive sector.
57

Assumptions & Methodology for Export Output & Incentive Outlay
#
Automotive
Company
Category
Number of
Assumed
Beneficiaries
Avg. Export
Size of Each
Beneficiaries
Estimation Methodology
1
International
Purchase
Offices (IPO)
35 INR 800 Cr
• According to various industry estimates,
there are more than 50 automotive IPOs
in India
• Primary research was conducted with a
sample of top exporting IPOs as well as
smaller IPOs to estimate the avg.
purchase size
2 Auto OEM 15 INR 5,000 Cr
• There are more than 40 OEMs operating
in the country across different vehicle
categories
• As per industry data, Top 15 OEMs
account for >90% of automotive exports
• Financial analysis of Top 15 OEMs
through annual reports, subscribed
databases & MCA company registry to
calculate the current & historical exports
value for qualifying OEMs
• In-house knowledge was also leveraged
for estimations through discussion with
experts
3
Auto
Component
45 INR 600 Cr
• In-house database of top 100 auto-
components exporters was leveraged to
identify key exporters
• Financial analysis of Top 30 exporters
was conducted(Including some Non-
ACMA members) leveraging annual
reports, subscribed company databases
to arrive at average export size



58

Assumptions & Methodology for Economic Impact Calculation
S.No
Economic Impact
Category
Estimation Methodology
1
Increase in
Employment
• Employment norms for productivity (per Rs. Crore revenues ) at
OEMs, Tier-1, Tier-2, Tier-3 etc. were arrived at using company
annual reports along with NSDC & DHI estimates for total
automotive employment
• Primary research with select automotive and component
companies was conducted to validate the norms
• New jobs for each leg of automotive value chain was estimated
basis the increase in revenue & the employment norms
2 Direct Tax Collection
• A thorough financial analysis of a sample of companies was
conducted to arrive at average profitability for each value chain
leg
• Estimated margins were also arrived at through the analysis of
P&L statements (revenue & cost of materials)
• Increase in Profit Before Tax (PBT) was estimated using average
profitability & estimated increase in revenue
• Increase in PBT was multiplied with direct tax rate% to estimate
increase in collections
3 Indirect Tax (GST)
• For calculating GST collection, growth in revenue from increase
in domestic sales was considered (GST on increase in exports
not considered due to duty drawback)
• Applicable GST on increase in domestic revenue calculated basis
18% GST rate
4 Investments
• Financial analysis of OEMs & components was conducted to
arrive at average Investment norms (Average asset turnover
ratio)
• Current asset utilization & threshold asset utilization was
estimated using sample financial analysis. Asset utilization &
investment norms were applied to the increase in revenue for
OEMs & component players to arrive at estimated investment
that will be required to the achieve the targeted growth

End of Report