In a direct communication to Prime Minister Narendra Modi, foreign brokerage Bernstein has advocated for the termination of India's Production-Linked Incentive (PLI) scheme targeting the automotive sector. Bernstein asserts that the scheme, valued at ₹25,938 crore, is largely unnecessary for cash-rich Indian Original Equipment Manufacturers (OEMs).
Why Bernstein Recommends Ending Auto PLI
According to Bernstein, Indian auto OEMs are not using the PLI scheme to foster domestic innovation or manufacturing of critical components like battery packs and cells. Instead, they are primarily sourcing these from China. “Auto OEMs do not need PLI — they are cash-rich and should be held responsible for driving the transition — and in any case even the leading OEMs are only purchasing battery packs/cells from China instead of investing in R&D and capex,” the brokerage stated in its letter.
Bernstein further suggested that for any future PLI solicitations, the government should consider taking equity stakes in these cash-rich companies.
Shifting Towards Demand-Side Incentives and ICE Taxation
Beyond the PLI scheme, Bernstein outlined a broader strategy for India's automotive transition. The firm called for a clear phase-out timeline for internal combustion engine (ICE) vehicles, coupled with a gradual increase in taxes on such vehicles. This, they argue, would create a credible pathway towards electrification.
“Incentives should shift away from production-linked benefits for capital-rich incumbents toward demand-side support that allows new entrants to compete, provided they meet localization thresholds,” the foreign brokerage noted.
This shift would redirect support towards consumers and new market entrants, encouraging broader adoption of electric vehicles (EVs) and fostering a competitive environment for domestic manufacturing with localization requirements.
Broader Energy Security Recommendations
Bernstein's recommendations also extended to broader energy security, suggesting that electrification efforts should encompass household energy use, particularly cooking, to reduce India's reliance on imported LPG. The firm emphasized that true energy security requires not only reducing import dependence but also addressing structural inefficiencies within the power system.