Auto firms seek fixed forex rates for DVA compliance under PLI scheme

To qualify under the ₹25,938 crore auto PLI scheme, a vehicle model's import content must be restricted to 50 per cent, meaning less than half of its value (in rupee terms) can be imported

Automakers, carmakers, auto industry — Automakers have urged the government to use fixed forex rates for PLI calculations, arguing rupee depreciation is distorting localisation levels on paper.

Deepak Patel New Delhi

5 min read Last Updated : Jun 07 2026 | 11:06 PM IST

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Automobile manufacturers have asked the government to adopt fixed foreign exchange (forex) rates for calculating domestic value addition (DVA) under the auto production-linked incentive (PLI) scheme, as the recent depreciation of the rupee was artificially reducing the localisation level of some products, and pushing them closer to the minimum threshold required to qualify for incentives, Business Standard has learnt.

To qualify under the ₹25,938 crore auto PLI scheme, a vehicle model's import content must be restricted to 50 per cent, meaning less than half of its value (in rupee terms) can be imported. DVA is calculated by subtracting the value of import content from the ex-factory price of the model.

During a meeting last week with the Ministry of Heavy Industries (MHI) and the Automotive Research Association of India (ARAI), auto industry executives said they were facing challenges because the rupee had weakened against major foreign currencies during the last one year.

This depreciation has accelerated due to the West Asia conflict which started on February 28 when Israel and the US conducted military strikes on Iran. As a result, the rupee value of imported components had risen, even though the actual quantity of imports remained unchanged.

This reduces the reported DVA percentage on paper, even though the actual level of localisation remains unchanged, the automakers contended.

The rupee has depreciated by about 10.7 per cent against the US dollar over the past year, with the exchange rate weakening from ₹85.78 per dollar on June 6, 2025, to ₹94.95 per dollar on June 6, 2026.

The ARAI, a testing agency under MHI, has the responsibility of verifying localisation levels of vehicle models claiming incentives under the auto PLI scheme.

The sharp rupee depreciation could create problems at several stages of the certification process under the PLI scheme, the automakers pointed out during the meeting.

They proposed that the government use the average exchange rates prevailing in 2023 as the reference rates for DVA calculations. Their request covered the US dollar (USD), the euro (EUR) and the Chinese yuan (CNY), which were commonly used for importing automotive components, electronics, battery materials, machinery and specialised equipment.

They stated that 2023 should be the reference year because the standard operating procedure on DVA was issued that year, and companies made localisation plans based on the framework that was in force then.

Automakers fear that under the present value of rupee vis-a-vis foreign currencies, they could be found in non-compliance of DVA norms of the auto PLI scheme whenever they submit any application for certification of a new vehicle model, or when they undergo annual revalidation of models that are already taking incentives, or whenever testing agencies such as the ARAI conduct their techno-commercial audits (TCAs).

As per the SOP to calculate the DVA, every new advanced automotive technology (AAT) vehicle or component seeking benefits under the PLI scheme must first undergo a DVA assessment by a government-approved testing agency, before receiving an AAT certificate. This certificate is valid for one year.

After that, automakers must undergo annual revalidation, also known as periodic surveillance assessment (PSA), to confirm that the product continues to meet the required localisation levels and other scheme conditions.

Separately, testing agencies can conduct a TCA, which is a detailed examination of a company's bill of materials, supplier invoices and manufacturing processes to verify that the DVA figures submitted by the company are accurate. The SOP also requires a TCA to be carried out within six months of the initial application.

For electric vehicles (EVs) and other advanced technologies, Indian automakers continue to depend on imports for battery cells, semiconductors (computer chips), power electronics, rare-earth magnets and certain specialised materials.

Automakers, during the meeting, stated that the objective of the PLI scheme is to encourage domestic manufacturing and localisation, rather than measure the impact of currency movements. They explained that exchange-rate fluctuations did not alter the actual manufacturing effort undertaken in India, and therefore, should not affect DVA compliance.

Government officials and testing agencies, according to sources privy to the matter, were examining the industry's representation. No decision has yet been taken on whether the DVA framework will be modified to incorporate fixed exchange rates, or any other mechanism to neutralise the impact of currency fluctuations.

The MHI, the ARAI as well as the Society of Indian Automobile Manufacturers (Siam) did not immediately respond to queries sent by Business Standard on the matter.

The MHI had released the DVA certification SOP in April 2023 as part of a more stringent verification framework. As per the SOP, testing agencies such as ARAI, the International Centre for Automotive Technology (iCAT), the Global Automotive Research Centre (GARC) and the National Automotive Test Tracks (NATRAX), are responsible for checking if the DVA level in vehicle models claiming PLI incentives is more than 50 per cent (in rupee terms).