The Society of Indian Automobile Manufacturers (Siam) has written to the government twice in the past month, requesting an early decision on forex rate calculations for the ₹25,938 crore auto PLI scheme. According to reports from Business Standard, automakers have put fresh applications and revalidation requests on hold as the government is yet to finalise the forex rate for domestic value addition calculations. The industry body has sought the use of foreign exchange rates averaged over previous years, instead of prevailing market rates, for DVA calculations under the PLI scheme. In its June 3 letter to the Ministry of Heavy Industries (MHI) and June 17 letter to ARAI, Siam emphasized the urgency of the matter, stating that an early clarification within 7-10 days would greatly assist applicants in proceeding with their submissions and certification processes.
As reported by Business Standard, the dollar exchange rate has risen from around ₹82-83 per dollar during FY23 levels to nearly ₹96 per dollar currently, representing an increase of about 15 per cent. Siam noted that manufacturers are simultaneously experiencing increased cost pressures on imported inputs and systems that are not available locally. 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 under the scheme. According to Siam's June 3 letter, such unprecedented forex movements and input cost increases in the last three quarters were affecting DVA calculations even though companies had increased localisation, creating an "unintended adverse impact" on DVA compliance due to factors beyond automakers' control.
According to Business Standard, in its June 17 letter to ARAI, Siam proposed calculating a benchmark rate based on the Reserve Bank of India's average exchange rates for FY24 and FY25 and excluding FY26 from the calculation. The industry body stated that the average of FY24 and FY25 rates represented "relatively stable, pre-shock exchange-rate regimes and are therefore more representative of the structural relationship of the rupee vis-à-vis major currencies for purposes of a regulatory benchmark." Siam proposed that the fixed foreign exchange rate remain in force until March 31, 2027, after which its continuation should be reviewed based on prevailing economic conditions. The proposed methodology addresses the industry's concern that FY26 should be treated as an 'anomaly' year due to external shocks including higher US tariffs and the Israel-US conflict with Iran, which disrupted the Strait of Hormuz and pushed up crude oil prices.
To qualify under the 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. As reported by Business Standard, DVA is calculated by subtracting the value of import content from the ex-factory price of the model. Siam stated that the sharp depreciation of the rupee had increased the value of imported components used in DVA calculations without any corresponding change in companies' sourcing patterns or local manufacturing efforts, creating a situation of de facto non-compliance driven entirely by macroeconomic disruption. 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.
