It’s 2021, we’re almost nearing the light at the end of this pandemic-shaped tunnel, but if you have a manufacturing plant from one of the 13 listed sectors, then the light just got brighter for you. The Government of India (GoI) in its relentless pursuit to please small-business owners, has presented yet another gift-wrapped policy that promises scalability.

The government’s Production Linked Incentive Scheme (PLI) for large-scale electronics manufacturing grants incentives to producers, for India, to have a better global standing in manufacturing and exports. Under the PLI scheme, qualified players can receive incentives ranging from 4% to 6% of production value for five years, provided that they can meet their investment and production value target for each year.

What is the Production Linked Incentive scheme?

Several game-changing reforms have been launched under the umbrella of the “AtmaNirbhar Bharat Abhiyan”(Self-Reliant India) movement launched by Prime Minister Narendra Modi to promote ease of doing business in India. From establishing next-gen infrastructure to uplifting exports, the government is focusing on strategies for businesses to bloom in India and providing a platform for global investors to pick India as their choice of investment destination. One more reform is the PLI scheme which aims to bring significant changes in India’s industrial policy.

The PLI scheme was instituted by the central government in April’2020 for large-scale electronics manufacturing in India. The scheme calls foreign companies to set up manufacturing units in India. However, it also encourages local businesses to set up or expand existing manufacturing capacity. It’s a simple and well-presented scheme that incentivizes companies that manufacture mobile phones and other electronic components like transistors, diodes, resistors, and other nano-electronic components based on incremental investments and sales year on year.

The objectives of PLI can be broadly classified as follows:

• To identify and target selected product areas
• To introduce non-tariff measures to compete with cheap imports and making imports expensive
• To focus more on domestic market maintaining the importance of exports in overall growth strategy
• To promote local manufacturing by offering incentives while encouraging investment from within and outside the country

.

Why is a scheme like PLI the need of the hour for the growth of developing India? 

Indian electronics hardware manufacturing has been lacking a fair field for a while, compared to the rest of the competing nation. Historical data indicates that the sector has been suffering a disability of 8.5-11% due to inadequate infrastructure, domestic supply chain & logistics, high cost of finance, etc.

To combat this challenge, the central government introduced the PLI scheme as part of the National Policy on Electronics in April 2020. It aims to position India globally for Electronics System Design and Manufacturing (EDSM) by stimulating capabilities in the nation for developing core components and providing a growth environment for the industry to compete globally.

.

Which businesses are eligible for the scheme?

Eligibility criteria for businesses falling under the PLI scheme are subject to thresholds of incremental investment and sales of manufactured goods. In the first round of approval, three sectors were approved in April 2020, namely:

• Schemes for Electronics Manufacturing – Mobile phones and specified electronic components
• Schemes for Pharmaceutical Manufacturing – Critical key starting material/ Drug intermediaries and Active Pharmaceutical Ingredients
• Schemes for Medical Devices Manufacturing – Manufacturing of Medical Devices

In November 2020, 10 new sectors were announced to be given the benefit of the scheme. In the Union Budget, an outlay of INR 1.97 lakh crore has been announced PLI schemes for 13 key sectors for 5 years starting from fiscal year (FY) 2021- 22. Find below a table highlighting the sectors, the ministry governing them, and the budget outlay.

Source: pib.gov.in

.

Application process and grant of incentive 

The PLI scheme is designed for 5 years with the financial year (FY) 2019-2020 is considered as the base year for incentive calculation. This implies that all the investments and incremental sales that a company makes after FY20 shall be taken into account while calculating the incentive to be given. The incentive percentage varies from sector to sector.

These incentives are governed by central government through relevant ministry/departments and will involve the following process:

• Applicants to submit an online proposal with details of their investment plans
• A complete evaluation of the proposal by government-appointed appraisal agencies
• Selecting investors from the pool of applications for the grant
• Disbursement of incentives on achieving the targets as mentioned during the application stage.

Let’s understand this better with help of an example:

A mobile manufacturing company called XYZ Mobile phones plans to expand and apply for an incentive grant. The base year sale of the company is 2000crs and targeted sales for next year are 2200crs. The company will receive 6% of 200crs, i.e. 12 crores as an incentive for the first year. By the final year, this incentive will come down to 4% of incremental sales.

Government’s take on PLI

“$520 billion of production is estimated to take place in India in the next five years through PLI alone. There is also an estimate that the workforce will double in the sectors that have been given PLI. This will help increase income and demand” – PM Modi said while addressing India Inc at the webinar organized by the Department of Industry and International Trade and NITI Aayog. In addition, the center aims to reduce 6,000 compliances at the state and center level to further increase the ease of doing business.

The government envisions changing the current situation of exporting limited products to limited countries from limited locations.

The center is hopeful that the impact of PLI in 13 introduced sectors will not only benefit the respective sector but will benefit the whole ecosystem. Overall, the national government has devised a well-thought-out scheme, built a streamlined process, and intends to elevate India as a manufacturing powerhouse.

The way forward

PLI scheme has been a huge success in terms of the applications received from Global as well as Domestic Mobile Phone manufacturing companies and electronic components manufacturers.

– Ravi Shankar Prasad, Union Minister for Electronics & IT, Communications, Law, and Justice

The other sectors have recently started gaining traction from the industry and respective ministries/departments have started receiving bids in solar, textile, etc. The road ahead is not a smooth journey, while the government has proposed the outlay for the next five years; the uncompetitive environment still presents itself as an obstacle.

India, right now, is in a sweet spot in terms of expanding manufacturing capacity for domestic & export markets and through the PLI schemes, it is en-route to becoming AtmaNirbhar Bharat and creates a large manufacturing ecosystem that would be at par with the largest economic powers of the world.