Automakers hit a domestic value calculation speed bump on way to Rs 25,938-crore PLI scheme benefits

These firms are concerned that they may not receive sops under the Rs 25,938-crore scheme for the first year of its five-year operational period if they fail to have certified models by March 31.

To receive subsidies under the scheme, automakers need to get their products certified for meeting all the stipulated conditions that include minimum 50% domestic value addition (DVA). But the firms are facing difficulty providing data to calculate DVA in the format sought by the MHI, people cited above said.

As per the format, companies are required to provide data up to tier-3 level suppliers for calculation of DVA. This includes information like where raw material and components were sourced from and at what costs, and at what prices they were sold further.

A direct supplier to an original equipment manufacturer (OEM) is called a tier-1 supplier. Vendors to these tier-1 suppliers are called tier-2 suppliers and so forth.

Automakers have informed the government that they do not have such data beyond their tier-1 suppliers, multiple people in the know said.

“We have tried; it’s not like we have not tried,” an industry official told ET. “But sourcing information till tier-3 level is not possible because OEMs have a relationship with only tier-1 suppliers,” said the person who requested not to be named as the discussions between automakers and MHI are private.Manufacturers also told the government that their sub-suppliers are under no contractual obligation to share such information and that some of the data sought are confidential in nature.

The MHI, however, has maintained that automakers must provide the information in the format sought by the government to ensure that the DVA criteria is met.

The emphasis on data up to tier-3 suppliers is to ensure that no imported part gets passed on as locally made using a simple pass-through from a local vendor with no actual value addition, officials said.

“The purpose of the PLI scheme is to boost domestic value addition,” a government official told ET earlier. “So, companies will have to calculate their DVA.”

Queries sent to the MHI and automakers including Tata Motors, Mahindra and Mahindra, Suzuki Motor Gujarat, Ashok Leyland, TVS Motor, Bajaj Auto and Hero MotoCorp, among others, remained unanswered as of press time Thursday.

People aware of the development said the government and the industry are trying to arrive at a workable situation where the government can get assurances of compliance to the DVA criteria while automakers may not have to reveal commercially sensitive information.

One workaround could be that automakers and their suppliers could provide the authorities a chartered accountant-verified undertaking that outlines the DVA of each component without disclosing other sensitive information, said one of the people cited above.

To receive subsidies under the PLI scheme, manufacturers need to get their products certified by an MHI-approved testing agency and meet certain other sales and investment-related conditions stipulated under the scheme.

To be sure, not all automakers who have qualified for the scheme are looking to avail sops in the first year as they do not have relevant models in the market yet. Hence, they have not applied for DVA certification yet.

The PLI scheme for automobile and auto component sector has shortlisted twenty OEMs including carmakers, two- and three-wheeler makers, and new non-automotive investors.

The scheme also has shortlisted around 75 component makers, but ET hasn’t been able to verify if they face the same issue.

Concerns around DVA have been heightened after instances of misconduct came to light in a separate scheme to promote electric vehicles, called FAME-India, where some manufacturers allegedly availed subsidies despite not meeting localisation tenets by falsifying data.