The Indian government is reportedly signaling a significant shift in its policy towards foreign investment, with officials indicating a likelihood to consider applications under the Production-Linked Incentive (PLI) scheme from automobile and auto component companies that have Chinese investments. This development suggests a thawing in India-China relations, which have been strained since the Galwan Valley clashes in June 2020.
According to reports, the government will specifically review existing PLI applications that have already secured foreign direct investment (FDI) approvals. It is crucial to note that no new window for fresh applications under the PLI scheme is being opened at this time. This consideration could provide benefits to several joint ventures, including JSW MG Motor India, a partnership between JSW Group and China’s SAIC Motor. Additionally, two ventures of Tata AutoComp Systems with Chinese companies – TACO Prestolite (electric drivetrains) and TACO Air International (automotive air-conditioning systems) – may also stand to gain.
Easing Bilateral Tensions
The decision is seen as a direct consequence of improved diplomatic ties between India and China. Recent high-level engagements, such as Chinese President Xi Jinping’s visit to India for the BRICS Summit and his subsequent bilateral meeting with Prime Minister Narendra Modi, underscore this positive shift. Both nations have also increased ministerial and official-level exchanges, and agreements have been made to resume direct flights, further normalizing relations.
India has also introduced new guidelines aimed at expediting approvals for FDI proposals involving Chinese investments. Previously, pending approvals for such proposals had caused delays in processing a number of PLI applications. Some applications, like one from Dixon Technologies’ venture with a Chinese partner for electronic components, have already received PLI benefits, setting a precedent for this latest consideration.
Impact on Auto Sector PLI
The auto PLI scheme, initially approved in September 2021, boasts a substantial budgetary outlay of ₹25,938 crore. The incentives provided under the scheme are meticulously linked to several criteria, including incremental production, investment levels, and domestic value addition. The potential inclusion of companies with Chinese investments could significantly broaden the scheme’s reach and impact on the Indian automotive manufacturing landscape.