Government incentive scheme to boost auto sector: Fitch Solutions
Nov 13, 2020
New Delhi [India], November 13 : A day after the Indian government approved Rs 1.46 trillion (USD20 bn) incentive programme to attract more foreign companies to set up manufacturing operations in the country, Fitch Solutions, on Friday, said the incentive scheme will give a boost to auto production but hinted at some underlying risks as well.
"We believe that this policy provides significant upside potential for India's autos manufacturing industry over 2020-2025, especially in the field of electric vehicles (EVs) and the associated supply chains. According to India's Federation of Automobile Dealers Associations (FADA), the automotive industry is set to receive a large portion of this incentive fund over the five-year period, around Rs 570 billion (USD 7.6 bn)," an official statement from Fitch Solutions stated.
The Indian government will offer production-linked incentives to 10 sectors, namely 'white goods' manufacturing, pharmaceutical, specialised steel, autos, telecoms, textile, food products, solar photovoltaic panels and battery cells over the next five years, Finance Minister Nirmala Sitharaman announced on Thursday. The policy approved by India's Union Cabinet aims to specifically attract investment in the areas of core competency and cutting-edge technology to boost exports and position India as an integral part of the global supply chain.
Stating that the elevated operational risks present in the country will remain a challenge for many investors, Fitch Solutions said, "Our operational risk team believes that businesses operating in the country will continue to face additional structural risks stemming from legal risks, security gaps, excessive bureaucracy and patchy utility infrastructure, all of which currently increase the costs of operating in India, particularly compared with China. This means that while these incentives have the potential to provide a significant boost to the country's automotive industry, it will continue to fall short in realising its full potential given the limited progress in tackling the structural challenges in the country."
Further, Fitch Solutions expressed hope that the government will look to establish a strategy to reduce the risks that might become a barrier to investments in the future.
"We believe that the Indian government will likely look into establishing a strategy to reduce the operational risks present in the country over the next year or two, given that most business leaders have highlighted this as a barrier to investment," the statement added.
