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Auto Ancillary Sector Set for a Boost? Government Reportedly Mulling ₹13,000 Crore Incentive Scheme

2025-06-27  Niranjan Ghatule  
Auto Ancillary Sector Set for a Boost? Government Reportedly Mulling ₹13,000 Crore Incentive Scheme

A major development could be on the horizon for India’s auto ancillary sector. According to media reports citing government sources, a ₹13,000 crore incentive package might soon be introduced to boost local manufacturing of auto parts. While there has been no official announcement yet, the anticipation is building, and the sector is already reacting positively in the stock market.

The expected scheme is reportedly being formulated by the Ministry of Heavy Industries. Its primary objective would be to reduce India’s dependence on imported auto parts and strengthen the domestic production ecosystem. This incentive package will be separate from the existing Production Linked Incentive (PLI) schemes already rolled out for various industries. That indicates it may come with new terms and conditions tailored specifically to the needs and structure of the auto components sector.

To understand the significance of this development, it's essential to revisit what the Production Linked Incentive (PLI) scheme actually is. The PLI scheme was introduced by the Indian government to make the country self-reliant in manufacturing by incentivizing companies to increase local production. Under this scheme, firms that meet certain performance criteria, such as scaling up production or investment in plant and machinery, receive financial incentives. 

These benefits could come in the form of tax reliefs, direct cash incentives, or refunds based on output or investment thresholds.

For example, if a company manufactures a specific number of machines domestically instead of importing them, the government may offer a 10% incentive on total output. If production increases further, the incentive percentage may also rise. However, companies must first register with the government, commit to the terms and conditions, and demonstrate proof of performance. Only then does the incentive disbursement take place. 

Inspection and compliance play a crucial role. In a past instance, a company faced scrutiny after allegedly showcasing the same machinery across different facilities to claim benefits fraudulently. The government froze over ₹200-300 crore in incentives pending investigation, highlighting the seriousness with which compliance is enforced.

Coming back to the current proposal, the potential ₹13,000 crore package aims to incentivize domestic manufacturing of auto components. These include all internal parts used in vehicles—from wiring to specialized forged components. This move is aligned with the larger vision of “Atmanirbhar Bharat” or self-reliant India, which seeks to minimize imports and maximize exports by strengthening local capabilities.

The proposed scheme is still in the finalization stage, and the official word is expected soon. If approved, it is expected to generate substantial employment through plant setup and increased manufacturing activity. The auto ancillary space already contributes significantly to India’s manufacturing GDP and employment numbers, and such a boost could further accelerate growth.

Even though the scheme hasn’t been officially launched, the stock market is already responding in anticipation. Several auto parts manufacturers’ stocks surged on the day the news broke, with some rising by over 11%. Companies like Uno Minda, Tube Investments (Murugappa Group), Suprajit Engineering, and others posted strong gains. These firms are all deeply involved in auto components manufacturing and stand to benefit from any such policy announcement.

In terms of market leadership in the auto ancillary space, the top companies by market capitalization include Samvardhana Motherson International (formerly Motherson Sumi), Bosch Ltd, Uno Minda, Bharat Forge, and SKF India. Samvardhana Motherson leads the pack with a market cap crossing ₹1 lakh crore. Each of these companies operates in niche segments such as wiring harnesses, precision engineering, and forging, and would likely be keen participants in any new incentive scheme.

It’s worth noting that this proposed scheme is not part of the previously announced PLI frameworks. It is expected to be an entirely new package specifically tailored for the auto components sector. This suggests that a fresh set of qualification criteria, performance metrics, and compliance mechanisms may be introduced.

In summary, while the news is currently based on unconfirmed reports and government sources, the market sentiment suggests strong optimism. If the ₹13,000 crore package does materialize, it could be a game changer for the auto ancillary industry, spurring growth, innovation, and reduced reliance on imports. Investors and industry watchers are now closely awaiting the final word from the Ministry of Heavy Industries.

Disclaimer: This article is intended for informational purposes only. The news discussed is based on unofficial sources and may or may not materialize. Investors should exercise caution and await official confirmation before making any investment decisions.

 

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