Reflecting industry concern over the issue, the Society of Indian Automobile Manufacturers (Siam) has written to the government twice in the past month, requesting it to take an early decision, Business Standard has learnt.
Automakers have sought the use of forex rates averaged over previous years, instead of prevailing market rates, for DVA calculations under the PLI scheme. The rupee’s depreciation amid the West Asia conflict has artificially lowered DVA levels, which could push some products below the threshold required to claim incentives.
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.
On the aforementioned matter, Siam sent its first letter to the MHI on June 3 and followed it up with a second letter to ARAI on June 17. ARAI functions under the administrative control of the MHI.
In its June 3 letter, Siam said the dollar exchange rate had risen from around ₹82-83 per dollar (FY23 levels) during the initial period of the scheme to nearly ₹96 per dollar currently, an increase of about 15 per cent.
“In addition, manufacturers are simultaneously experiencing increased cost pressures on imported inputs and systems, which are locally not available,” it mentioned. Siam said “such unprecedented forex movements and the input cost increases” in the last three quarters were affecting DVA calculations even though companies had increased localisation. This is having an “unintended adverse impact” on the DVA compliance due to factors beyond automakers’ control.
The industry body also referred to a clarification issued by the MHI in May 2022, which recognised that DVA levels could fall because of currency fluctuations or changes in raw material prices even when there was no major change in a company's supply chain.
To address the issue, Siam requested the government to consider using a reference forex rate prevailing at the start of the scheme period, when the rupee was trading at around ₹82-83 per dollar, for fresh applications and products undergoing revalidation (renewal) for FY27. “The matter assumes urgency as several applications are currently under process across the industry, and an early clarification within the next seven-ten days would greatly assist applicants in proceeding with their submissions and certification processes,” it mentioned.
In its June 17 letter to ARAI, Siam proposed a different methodology for determining the fixed forex rate. Instead of using the exchange rate prevailing at the start of the scheme, it suggested calculating a benchmark rate based on the Reserve Bank of India's (RBI’s) average exchange rates for FY24 and FY25, and excluding FY26 from the calculation.
The average of FY24 and FY25 rates represented a "relatively stable, pre-shock exchange-rate regimes and are, therefore, more representative of the structural relationship of the rupee vis-a-vis major currencies for purposes of a regulatory benchmark", it noted.
The MHI, the ARAI as well as Siam did not respond to Business Standard's queries on this matter.
Siam also proposed that the fixed forex rate remain in force until March 31, 2027, after which its continuation should be reviewed based on prevailing economic conditions.
* Automakers have paused several fresh applications under the Auto PLI scheme due to uncertainty over the forex rate to be used for DVA calculations
* Siamhaswritten twice seeking an early decision as multiple industry applications are awaiting approval
* It said the rupee’s fall from ₹82-83 per dollar to nearly ₹96 has increased the value of imported components affecting DVA compliance
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