India’s Auto Production-Linked Incentive Scheme Insights

The discussion surrounding India’s auto production-linked incentive scheme has intensified, with Tarun Mehta contesting the government’s stance that startups are not the primary beneficiaries of the incentive initiative. Earlier this week, a senior government representative stated that the PLI scheme caters to “global champions,” not to startups, which face high eligibility requirements such as Rs 10,000 crore in revenue and Rs 3,000 crore in fixed assets. This barrier excludes electric-first companies and a majority of EV startups, including Ather Energy, Ola Electric, River, and Euler Motors from the scheme.

In response, Mehta expressed that the current interpretation of the PLI scheme misrepresents the dynamics involved in India’s EV transition. In an extensive post, he highlighted that startups and innovative EV companies have been instrumental in developing the electric two-wheeler landscape over the past decade, all without the support of established industry scale. Mehta remarked that these companies made early investments in areas such as product development, software, power electronics, and localisation, thus contributing to a thriving EV market.

Startups as Key Contributors to EV Ecosystem

His main argument conveys that startups are already achieving the outcomes the PLI scheme is intended to promote. He referenced Ather’s significant investments that amount to thousands of crores in research and development and manufacturing, over 4,000 direct jobs, and a forthcoming Rs 2,000 crore greenfield facility in Maharashtra, illustrating that electric-first companies play a crucial role in capacity creation and localisation.

Nevertheless, the government insists that the scheme is designed to support large manufacturers capable of scaling production and competing on a global front. Officials also indicated that startups often require “hand-holding” rather than incentives tied to performance.

Addressing the Gaps in Policy

Mehta countered this by asserting that startups are not only making substantial investments but are also fulfilling domestic value addition (DVA) requirements on par with larger enterprises. He cautioned that their exclusion creates a structural disadvantage, with estimates suggesting a cost gap of 13–16% between beneficiaries and non-beneficiaries of the PLI scheme. He stated that this disparity could shape the market’s evolution, cautioning that favouring large, established companies over innovation might hinder the transition to electric vehicles.

In a compelling analogy, Ather’s CEO compared startups to the “engine” of the EV transition, with established players as the “bogeys.” He implied that removing the engine from policy support could jeopardise the entire system.

Call for Policy Calibration

Importantly, Mehta did not advocate for a separate scheme but suggested a recalibration of the existing framework to introduce more flexible eligibility criteria that consider R&D intensity, localisation, and EV-specific scale. As the EV shift accelerates, the need to broaden the PLI framework is increasingly evident. Startups and new-age EV firms are making substantial investments in R&D and establishing fundamental capabilities from the ground up.

Incorporating them into the scheme could foster confidence and speed up innovation throughout the ecosystem. The ongoing question remains whether policy adjustments will occur in time to support those spearheading the transformation.

Mehta presents a compelling case that is applicable across various sectors where PLI has functioned as a vital mechanism to enhance the industry’s scale. By imposing excessively high thresholds, the government seems to have fallen prey to large conglomerates’ interests, which often seek to hinder disruption, thereby controlling the transition process. Mehta likely understands this better than most, which is why he described larger legacy players in the electric two-wheeler space as “bogeys.” Relying on established companies also secures the ability to enforce foundational changes to standards, thereby creating barriers that disadvantage disruptive startups.

Clearly, there is a strong need to allocate a portion of PLI incentives to firms pursuing an alternative but significantly faster path to scaling operations. Considering the mixed track record of PLI initiatives, notably the failures in areas like Battery Chemistry where major companies like Reliance have struggled to achieve projections, the bureaucracy must overcome its inherent resistance to change and display a stronger awareness of market dynamics. Currently, the government faces little risk, as incentives are typically linked to volumes and sales, by which time the PLI beneficiaries have already invested heavily.