In an exclusive interaction with Thiruamuthan, Correspondent at Finance Outlook India, Rajesh V, CFO & Director, Kostal India, shares how PLI schemes are reshaping automotive investment strategies and supply chains. He highlights the shift toward deep localization, phased capital deployment, EV-led innovation, and disciplined, demand-driven planning to drive value creation and position India as a global manufacturing hub.

Rajesh is a seasoned leader with over 2 decades of experience, specializing in financial reporting, controlling, and operations. He brings expertise in strategic finance, risk management, and process optimization, with skills in leadership, compliance, and driving business performance.

With PLI schemes accelerating investments in EVs and advanced automotive components, how can companies align capital deployment with localization targets and incentive-linked milestones?

The PLI scheme was introduced by the government to boost manufacturing plants to make investments into the market and industries, increase manpower and employment, and focus on technology upgradation, localization, and people development. The scheme was designed with multiple objectives, aligned with the Prime Minister’s vision of Atmanirbhar Bharat and Make in India.

In the context of automotive components sector, the capital deployment must be aligned with defined targets and milestones under the PLI scheme. Companies need to first establish their objective and strategy before adopting the scheme.

For instance, in some cases, component imports were more than 60 percent. Therefore, companies set targets to localize a significant portion of these components within India. Based on this, they define their investment strategy, as it is not feasible to invest in everything at once. They must evaluate where investments will generate maximum benefit. One of the key criteria is increasing value addition from indigenous or domestic sources.

However, localization alone is not sufficient. Companies also need to focus on R&D and innovation development within India. This requires establishing R&D setups locally to support product development and technological advancement. These efforts must be aligned with PLI scheme parameters to maximize benefits.

 

 

Another critical factor is the supply chain ecosystem. When localizing components, companies must assess whether suppliers are available across the entire value chain, including raw materials and input granules. This requires evaluating the readiness of suppliers across Tier 1, Tier 2, Tier 3, and even Tier 4 levels.

The PLI scheme is not limited to direct automotive manufacturers; it extends across the entire supply chain. Therefore, investment strategy must consider how capital is deployed not only at the OEM level but also across all supplier tiers. Companies must define their targets clearly, assess localization percentages, and determine the additional investments required.

In practice, OEMs such as Mahindra engage with Tier 1 and Tier 2 suppliers to gather details of their investments under the PLI scheme. This information is consolidated to demonstrate overall contribution, including domestic value addition and total investment, as part of compliance and reporting to the government.

In summary, companies should not limit their focus to their immediate scope. They must evaluate the entire supply chain, align investment strategies across all tiers, and ensure that deployment is structured, phased, and aligned with PLI objectives to achieve optimal outcomes.

As PLI incentives prioritize scale and value addition, how are OEMs and suppliers recalibrating investment strategies to maximize returns while managing execution risks?

The OEMs in the past were largely focused on their sourcing strategy. However, in the current situation, they are going into a much deeper dive. Currently, wherever they are sourcing components from, they are going into deep detail—right up to the last supplier who is supplying parts to the OEM. Direct suppliers are asked to gather information from their own suppliers and sub-suppliers, making the sourcing strategy deeper and more comprehensive.

OEMs are also pushing strongly on localization, clearly stating a preference to avoid imported parts and focusing on how localization can be achieved. They are increasingly aligning their investment strategies toward localization execution and reducing risk by minimizing imports. That is one key shift.

In the past, only larger components were localized, while the remaining parts were imported. However, the OEMS are exploring every possible opportunity that can be executed in India currently. They are maximizing returns by evaluating all components—what benefits can be achieved and how risks can be reduced. Accordingly, investments are not limited only to component localization, but also being made in R&D and technology.

At the same time, OEMs are looking at how to establish the supply chain system at deeper levels—not only at the direct supplier level but also across sub-suppliers, Tier 2, Tier 3, and Tier 4. This is where they are maximizing their localization strategies and aligning with PLI schemes.

As per recent reports, almost more than 70 percent domestic value addition is being targeted by OEMs. Every OEM is aiming for more than 70 percent.

Their focus is on high-volume, high-value, and technology-driven products, with a strong push to avoid imports and build local supplier ecosystems. OEMs are supporting suppliers by addressing investment and resource risks, and in some cases, even funding capital expenditure to enhance capacity and capabilities in India.

This reflects a clear shift in mindset, where localization is mandated not just at the OEM level but across Tier 2, Tier 3, and Tier 4 suppliers. Investment strategies are now aligned with clear targets for local content, domestic value addition, risk reduction, and ROI, while also emphasizing new technologies, EV infrastructure, and end-to-end supply chain development.

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With increased focus on domestic manufacturing, how is the PLI scheme influencing investment decisions across supply chains, particularly in high-value components like batteries and electronics?

If we look at the PLI scheme eligibility, automotive is one of the categories. However, there are more than 14 categories listed under industries eligible for the scheme. In India, the availability of electronic components—especially chips—has traditionally been a challenge. For instance, microcontrollers and chips had to be sourced externally, and PCBs were also largely imported. As a result, domestic capabilities were primarily limited to manufacturing activities.

However, there is now a clear shift toward developing strategies across the entire supply chain. Microcontroller and chip manufacturing companies are gradually entering the ecosystem. This reflects an increased focus on high-value electronic components under the PLI scheme.

Without the PLI scheme, there would have been limited interest in investing in such areas. Today, companies such as Intel, Cisco, and others are making significant investments in locations like Gujarat and Bangalore. This has been enabled by the government’s incentive framework, which has created strong motivation for such investment decisions.

Organizations are now focusing on deriving higher benefits, which is feasible primarily through high-value components. Localizing low-value components alone does not yield significant advantages. The government has also introduced criteria such as minimum value addition and local content requirements, which further encourage a focus on the electronics supply chain.

For instance, in our case, nearly 70 percent of the material content is electronics. Previously, imports were unavoidable. However, over the past two years, with the PLI scheme in place, we have initiated our own electronic assembly operations and made corresponding investments.

The motivation for these investments is driven by government incentives, including a 25 percent capital subsidy and turnover-based incentives of approximately 10 percent per commodity over three years. These measures have supported internal decision-making, while also helping reduce risks related to exchange rate fluctuations and supply chain disruptions.

From a global perspective, supply chains remain highly volatile. Geopolitical disruptions—including conflicts in the Middle East, earlier issues involving Israel and Ukraine, and ongoing tensions around China and Taiwan—continue to create uncertainties and risks.

In this context, the PLI scheme has been effectively implemented to promote not only domestic manufacturing but also self-reliance and export opportunities.

As a result, investments in high-value components are increasing. For instance, in PCB assembly (PCBA), several companies have already invested in electronics and SMT manufacturing. This reflects the on-ground reality of how the PLI scheme is driving transformation across the supply chain.

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As global OEMs evaluate India as a manufacturing hub, how effective has the PLI framework been in attracting long-term, technology-driven automotive investments?

This can be effectively assessed by drawing comparisons between broader industry developments and our own company’s experience. For instance, we have adopted the PLI scheme framework as part of our long-term strategy and have invested in EMS manufacturing.

The reason for taking this approach is that it has enabled us to demonstrate the Make in India concept while also helping us mitigate supply chain risks. We are seeing that our investment parameters are increasing year-on-year. Initially, we committed to an investment of around 8 million Euros under the PLI scheme, and the project was approved. Subsequently, we have moved forward with an additional expansion of 3 million Euros, reflecting our long-term commitment.

This is driven by the evolving automotive market and the demand for advanced products from OEMs. Earlier, vehicle systems were largely haptic, but today they are increasingly touch and sensor-based, indicating a clear shift toward high-tech manufacturing. At the same time, there is a strong push toward zero-emission and carbon-free mobility, which will soon become a mandatory requirement.

To address these changes, investments need to be made well in advance, as such transformations cannot be achieved within a short time frame. It requires a long-term investment strategy supported by continuous technology development.

Alongside investment and technology, localization remains a key focus. This involves manufacturing in India, generating employment, and leveraging these capabilities for exports. Earlier, we were primarily importing components, but now we are producing for both domestic consumption and export markets.

This transition has been supported by the incentive structure under the PLI scheme, which has provided flexibility in pricing and encouraged global players to consider India as an export base. As a result, India is increasingly being viewed not just as a service hub, but as a manufacturing hub, and this shift is significantly driven by the PLI scheme.

Since its introduction, many companies have initiated long-term investments, and this trend is clearly visible. For instance, the automotive sector has seen investments of around $4 billion by 2025, with participation extending across OEMs and Tier suppliers. Industry reports, such as those from the EEPC, consistently highlight new investments and the expanding ecosystem under the PLI framework.

Overall, the PLI scheme has proven to be a strong enabler in attracting technology-driven investments, and the results are already visible in the Indian manufacturing landscape.

As PLI schemes incentivize incremental production, how are automotive companies rethinking capacity planning and investment timing to avoid overcapacity while meeting growth targets?

In the current industry scenario, companies are not creating overcapacity. The intent behind the government introducing the PLI scheme was to first create capacity, reduce import content, and drive localization under the Made in India concept.

In this context, every investor is very careful in their approach. They plan detailed ROI calculations before making any investment decisions. They assess what the benefits will be, what targets can be achieved, what the risk mitigation measures are, and what demand is available. I think everyone takes these factors into account before making investments and applying for the scheme.

At the same time, there is a strong focus on step-by-step investment planning. Even if a company declares that it will invest around Rs 300 crores, the investment is not made in one shot. Instead, they proceed in phases. For instance, in the first phase, they may invest around Rs 50 crores, and then move to the next phase.

Capacity creation or expansion is then aligned with actual demand fulfillment, and decisions are taken accordingly. This ensures that companies avoid overcapacity while still meeting their growth targets.

This kind of phased and structured investment decision is what companies are following, and in our case as well, we are already taking care of it.

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With eligibility criteria tied to performance thresholds, how are firms strengthening operational and financial discipline to ensure consistent compliance and avoid incentive volatility?

The incentive volatility is not changing, as the incentive percentage is fixed. The variation typically ranges from around 6-11 percent, depending on the commodity. In addition to turnover-based incentives, there are also capital investment-based incentives.

Before taking any investment decision, companies evaluate their demand, available capacity, and OEM requirements, as well as overall industry and market demand. Based on this, they define their investment strategy. They do not create capacity without visibility; instead, capacity creation is driven by actual demand.

In India, the approach is generally risk-averse. Unlike China, where capacity is often created first and business opportunities are explored later, Indian companies typically create capacity only when there is a clear business opportunity. This is why, in markets like China, there is often excess capacity, leading to price wars and reductions of 20–30 percent to cover fixed costs.

In contrast, Indian companies are more cautious. Since capacity creation is planned carefully, there is a strong focus on ensuring capacity utilization. Before moving to the next phase of investment, companies assess whether existing capacity is fully utilized. This disciplined approach reflects the broader mindset within Indian industry.

In the near future, the evolution of PLI schemes will significantly shape the next phase of automotive investments, particularly in EV ecosystems and component innovation. The current and future trend is clearly toward electrification. All OEMs are increasing their focus on EVs. Even companies that were previously focused on hybrid or internal combustion engines are now actively exploring electric vehicles.

Within the EV ecosystem, companies are evaluating areas such as battery technologies, including lithium-based solutions, and assessing how they can contribute across the value chain. Earlier, the focus was largely on engine systems, but now it has expanded to component-level localization and deeper supply chain integration.

The volatility in global supply chains push companies to no longer rely heavily on imports. Instead, they will focus on what can be developed within India to minimize risk and maximize localization benefits. This also requires strengthening sourcing strategies and multi-level supply chain alignment to improve profitability and return on investment.

Policy support and strategic planning will continue to be key drivers as the industry moves toward advanced manufacturing and high-tech EV solutions. For example, OEMs like Mahindra are planning new EV launches, which reflects the presence of structured investment, sourcing, and supply chain strategies.

Overall, success in this evolving ecosystem will depend on how well companies align their strategies, policies, and supply chains—right down to the last tier—to support long-term growth and innovation.

Key piece of advice from Rajesh:

• The companies should stay updated on PLI and government incentive schemes to leverage opportunities for growth, profitability, and risk reduction.
• Focus on cost competitiveness and preparedness to navigate global uncertainties and increasing market pressures.
• Maximize domestic opportunities by strengthening local production capabilities and exploring export potential.
• Develop strong internal strategies and policies to effectively utilize India’s evolving manufacturing ecosystem.
• Actively contribute to industry forums and policy dialogue to share insights and help shape future government strategies.