NEW DELHI: Fitch Solutions Country Risk and Industry Research on Friday said the government's decision to extend the production-linked incentive (PLI) scheme to the automobile industry would provide significant benefits to the sector over the next five years.
It, however, noted that some of the operational risks present in the country would still remain a challenge for many investors despite the incentive.
"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," Fitch Solutions Country Risk and Industry Research said in a statement.
Citing Federation of Automobile Dealers Associations (FADA), it noted that the domestic automotive industry is set to receive a large portion of this incentive fund over the five-year period around Rs 570 billion.
"However, we note that the elevated operational risks present in the country will remain a challenge for many investors.
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," Fitch Solutions Country Risk and Industry Research said.
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, it added.
On November 11, the Cabinet approved PLI for 10 more sectors, including auto and pharmaceuticals, with an outlay of about Rs 1,45,980 crore over a period of five years.
Under another PLI scheme, an outlay of Rs 51,311 crore has already been approved.