Budget 2026: Auto PLI Outlay Doubled to Rs 5,940 Crore Despite Underutilisation The Union Budget 2026-27 has signaled a massive commitment to the automotive sector by doubling the outlay for the Production Linked Incentive (PLI) scheme for automobiles and auto components. The allocation has been increased to Rs 5,940 crore, up from the previous year's budget estimate of Rs 2,974.61 crore. This move comes at a critical juncture for the Indian automotive industry, which is striving to transition toward advanced technologies and electric mobility. Despite a significant portion of the previous year's funds remaining unutilised, the government's decision to increase the budget reflects a long-term vision for domestic manufacturing. ## Significant Boost for Automotive Manufacturing The automotive industry remains a cornerstone of India's fiscal health, contributing nearly 15 percent of total GST collections and providing employment to over 30 million people. The doubling of the PLI outlay is expected to provide the necessary fiscal cushion for OEMs to accelerate their transition to green mobility. As the industry moves into the third year of the scheme, the focus will likely shift from investment to actual production and incentive disbursement. The government's strategy appears to be shifting toward supporting the supply side through PLI while maintaining a calibrated approach to demand-side subsidies. ## Budgetary Allocations and Fiscal Trends The revised estimates for the fiscal year 2025-26 show that the actual utilisation of the PLI funds stood at approximately Rs 2,104.57 crore. This underutilisation was primarily attributed to the inability of several Original Equipment Manufacturers (OEMs) to meet the stringent Domestic Value Addition (DVA) norms and sales targets. However, the Ministry of Heavy Industries remains optimistic, projecting a substantial increase in production as the scheme enters its third year. The ministry had initially sought Rs 5,800 crore for the upcoming fiscal, but the final budget allocation exceeded these expectations, underscoring the sector's importance to the national economy. ## Addressing the Underutilisation in FY26 One of the primary hurdles for participants in the Auto PLI scheme has been the 50 percent domestic value addition requirement. Many companies struggled to secure DVA certificates in the previous fiscal year due to lower-than-expected localisation levels. The automotive supply chain for advanced technologies, particularly for electric vehicles and hydrogen fuel cells, is still in its nascent stages in India. As investments made in the first two years begin to bear fruit, the government expects production to scale up significantly in FY27. ## The Domestic Value Addition Challenge The 50 percent DVA provision is one of the scheme's most significant challenges. Officials have noted that several applicants could not receive their DVA certificates in FY26 because they failed to meet the localisation threshold. However, industry experts believe that production will scale up in FY27, as is typical in the third year of such schemes after initial investments are completed. The government's insistence on high localisation is intended to reduce import dependency and build a robust domestic ecosystem for advanced automotive components. ## Success Metrics of the Auto PLI Scheme The scheme has already shown tangible results in terms of investment and job creation. According to official data, the Auto PLI has attracted cumulative investments exceeding Rs 35,000 crore and has been instrumental in the production of nearly 14 lakh electric vehicles. Furthermore, the initiative has generated approximately 49,000 jobs and facilitated the manufacturing of nearly 100 advanced automotive products within the country. Out of 82 applicants, 18 have successfully qualified for the incentives, including major players like Tata Motors, Mahindra & Mahindra, and Maruti Suzuki. ## Key Beneficiaries and Industry Participation The 18 successful applicants under the scheme represent the cream of the Indian automotive industry. These include Tata Motors, Mahindra & Mahindra, Maruti Suzuki, Toyota Kirloskar, Hyundai Motor India, Kia India, Piaggio, Eicher Motors, Hero MotoCorp, Bajaj Auto, and Ola Electric. These companies are at the forefront of the shift toward electric and hydrogen-powered vehicles. The incentives, which range from 13 percent to 18 percent for EV and hydrogen components, are designed to offset the higher costs associated with these advanced technologies. ## The Startup Perspective and Policy Demands While established players are benefiting, startups in the electric vehicle space are feeling left out. Companies like Ather Energy, River, and Euler Motors have raised concerns regarding the high eligibility thresholds. Currently, the scheme requires a group global turnover of at least Rs 10,000 crore for OEMs and an investment of Rs 3,000 crore in fixed assets. These criteria effectively exclude most new-age tech companies and startups. In response, the Startup Policy Forum has proposed a dedicated innovation-linked sub-window within the PLI framework to support smaller, high-tech manufacturers. ## Contrasting Trends in Battery and EV Schemes In contrast to the boost for the Auto PLI, the Advanced Chemistry Cell (ACC) battery PLI scheme saw a sharp reduction in its budgetary allocation. The outlay was cut by 44.5 percent to Rs 86 crore for FY27. This reduction is linked to the slow progress in commissioning battery manufacturing capacities. Currently, only a small fraction of the targeted 50 GWh capacity has been commissioned, with Ola Electric being the sole operational beneficiary. Supply chain bottlenecks and delays in technical specialist visas have contributed to these implementation challenges. ## Market Impact and Industry Sentiment The doubling of the Auto PLI budget has been met with positive sentiment from the industry, although challenges remain. The PM E-DRIVE scheme also saw a revised allocation of Rs 1,500 crore for the next fiscal year. This scheme focuses on incentivising the demand for electric two-wheelers, three-wheelers, and public transport. The focus on public transport is evident through the PM e-Bus Sewa, which aims to deploy over 38,000 electric buses across the country. These combined efforts are expected to drive the adoption of green mobility across various segments. ## Analysis: Why the Outlay Increase Matters The increase in the PLI outlay signifies the government's confidence in the automotive sector's ability to scale up production. By providing a larger fiscal pool, the government is ensuring that companies that meet their targets are promptly rewarded. This is crucial for maintaining the momentum of investments in R&D and new manufacturing lines. The focus on advanced automotive technology (AAT) is intended to make India a global hub for EV manufacturing, competing with established markets like China and the European Union. ## Future Projections for the Sector Looking ahead, the Ministry of Heavy Industries plans to seek even higher allocations in the coming years. Projections suggest a requirement of up to Rs 9,000 crore for FY28 and Rs 9,500 crore for the scheme's final year in 2027-28. This upward trajectory indicates that the government expects the peak of the manufacturing cycle to occur in the latter half of the decade. As more companies overcome the initial hurdles of localisation and sales thresholds, the disbursement of incentives is expected to accelerate. | Fiscal Year | Budget Estimate (Rs Crore) | Revised Estimate (Rs Crore) | |---|---|---| | 2024-25 | 300.00 | 325.35 | | 2025-26 | 2,974.61 | 2,104.57 | | 2026-27 | 5,940.00 | TBD | ## Conclusion The Union Budget 2026-27 has reinforced the government's commitment to the 'Make in India' initiative within the automotive sector. While underutilisation in the previous year remains a point of discussion, the doubling of the PLI outlay serves as a strong incentive for OEMs to achieve their localisation and production targets. The success of the scheme will ultimately depend on the industry's ability to build a robust domestic supply chain and meet the evolving demands of the global green mobility market. The government's openness to reviewing startup eligibility could further broaden the scheme's impact and foster innovation in the sector.