Production Linked Incentive (PLI) scheme 2.0

Introduction

PLI Scheme, as the Production Linked Incentive Scheme is commonly abbreviated as, is an initiative started by the Government of India to not only encourage foreign companies to find workforce in the country and thereby generate employment, but also encourage domestic and local production to create micro jobs. This scheme is a flagship programme of the Government of India launched in March 2020. The scheme aims to encourage domestic manufacturing and reduce India’s dependence on imports, particularly from China. The scheme provides financial incentives to eligible companies for increasing their production in identified sectors.

 

As clear by the name, PLI scheme is an initiative that provides incentives to domestic industries to boost local production. When that happens, specifically tailored products emerge that satisfy a selected niche of target audience. Domestic businesses also help in cutting down import bills. As per the PLI scheme, the government encourages domestic companies and establishments to set up or expand on manufacturing units to increase production, to which the government provides incentives on incremental sales. Under the PLI Scheme, eligible companies will receive financial incentives based on their incremental sales or exports over a period of five years.

 

Context

1. Over the past 8 years, the electronics manufacturing industry in India has experienced consistent growth, achieving a commendable Compound Annual Growth Rate (CAGR) of 17%. This year, it has surpassed a significant production milestone, reaching 105 billion USD (equivalent to about Rs 9 lakh crore).
2. India has successfully emerged as the world’s second-largest manufacturer of mobile phones, highlighting its prowess in the electronics manufacturing sector. Notably, the exports of mobile phones have also reached a remarkable milestone of 11 billion USD (about Rs 90 thousand crores) this year.

3. India is attracting the attention of the global electronics manufacturing ecosystem, positioning itself as a prominent player in the field. The country is rapidly emerging as a major hub for electronics manufacturing, capitalizing on the opportunities presented by the industry.

1. The PLI scheme can also bring back old designs and product customs that can contribute heavily to the diversity, while also empowering forgotten artistry buried due to colonialism.
2. The framework of the PLI scheme is to reward increased production.
3. Due to the niche and specificity of PLI linked sectors, that mostly involve careful and attentive focus on man force and creating, PLI can enhance building systems to adjust to climate change and even essentially reverse it in the many years to come.
4. The telecom and mobile phone PLIshave brought in investments of more than ₹3,600 crores and created lot of jobs over the past two years.

Objective

The objective of the PLI 2.0 scheme is to make India a global manufacturing hub for identified sectors.The scheme aims to increase production, create jobs, and reduce imports. The PLI scheme is essential in the country for many reasons. The prime necessity, is to neutralize the amount of imports and exports in the country in a non-discriminatory manner. This is possible when domestic industries are given more and due importance. Another reason is that India is primarily a labour intensive workforce owing to the population, and that the government could focus on capital influx for growth. But the capital intensive growth can generate returns only after a long time, a duration that foreign funding can afford. So instead, the government shifting its focus to boost short term, under a year result driven industries, can potentially balance the trade into and out of the country. The local production will lead to lower costing products for Indian consumers. The global electronics manufacturing ecosystem is coming to India, and it is emerging as a major electronics manufacturing country.

Phases of PLI Scheme

First Phase

The first phase of the initial PLI scheme covered three sectors, namely, mobile phones, pharmaceuticals, and medical devices. Later, in November 2020, the government announced inclusion of ten additional sectors (totaling to 13 sectors) mentioned below:

 

1. Advanced Chemistry Cell (ACC) Battery: The scheme aims to encourage domestic manufacturing of ACC batteries, which are used in electric vehicles, grid storage, and other applications.

 

2. Electronic/Technology Products: The scheme aims to promote domestic manufacturing of electronic and technology products, such as laptops, tablets, servers, and routers.

 

3. Automobiles and Auto Components: The scheme aims to promote domestic manufacturing of automobiles and auto components, such as electronic power steering systems, sensors, and electric vehicle components.

 

4. Pharmaceuticals: The scheme aims to promote domestic manufacturing of key starting materials (KSMs), drug intermediates, and active pharmaceutical ingredients (APIs).

 

5. Telecom and Networking Products: The scheme aims to promote domestic manufacturing of telecom and networking products, such as optical fibers, 4G/5G equipment, and routers.

 

6. Textiles Products: The scheme aims to promote domestic manufacturing of man-made fibers and technical textiles.

 

7. Food Products: The scheme aims to promote domestic manufacturing of food products, such as ready-to-eat foods, processed fruits and vegetables, and marine products.

 

8. White Goods (ACs and LED Lights): The scheme aims to promote domestic manufacturing of air conditioners and LED lights.

 

9. High-Efficiency Solar PV Modules: The scheme aims to promote domestic manufacturing of high-efficiency solar PV modules.

 

10. Specialty Steel: The scheme aims to promote domestic manufacturing of specialty steel, such as steel used for electrical transformers and electric vehicles.

 

The PLI for IT hardware such as laptops, tablets, all-in-one computers, and servers was first announced with an initial outlay of around Rs 7,300 crore over a period of four years. Under the scheme, domestic players investing Rs 20 crore and clocking sales of Rs 50 crore in the first year, Rs 100 crore in the second, Rs 200 crore in the third, and Rs 300 crore in the final year, would pocket incentives of 1-4 per cent on incremental sales over 2019-20, the base financial year. 42 companies in the telecom manufacturing sector have invested ₹1,600 crore in the first year, instead of the projected ₹900 crore.

Second Phase i.e. PLI 2.0

Building upon the achievements of the Production Linked Incentive (PLI) scheme implemented for mobile phones, the Union Cabinet, chaired by the Hon’ble Prime Minister Shri Narendra Modi, on 17^th May approved the revised Production Linked Incentive Scheme 2.0 for IT Hardware segment with a substantial budgetary outlay Rs. 17,000 crores, more than doubling the budget for the scheme. The scheme aims to leverage the achievements of the PLI scheme implemented for mobile phones, which played a pivotal role in establishing India as the world’s second-largest mobile phone manufacturer. The scheme will be implemented from July 1, with a cap on maximum incentives available to participating companies. This decision further strengthens the government’s commitment to promoting and supporting the growth of the IT hardware manufacturing sector in India.

This scheme is focused on expanding India’s production and presence in Global value chains of IT hardware, servers and laptops. PLI Scheme 2.0 for IT hardware covers laptops, tablets, all-in-one PCs, servers and ultra-small form factor devices.

The IT hardware industry is targeted to reach a production of $24 billion by 2025-26, with exports anticipated to be in the range of $12-17 billion during the same period.By deepening & broadening the electronics ecosystem in India, this scheme will play a key role in catalysing India’s Techade and in achieving the $1 trillion digital economy goal – including $300 billion of electronics manufacturing by 2025-26.

This revised PLI is expected to serve as a major catalyst for both global and domestic companies aiming to establish or expand their IT hardware manufacturing operations in India.This move will help more Indian companies grow and they can combine design and manufacturing to become global brands.

 

Salient Features

1. The PLI Scheme 2.0 for IT hardware encompasses a wide range of products including laptops, tablets, all-in-one PCs, servers, and ultra-small form factor devices.
2. The scheme has a budgetary allocation of Rs. 17,000 crores, signifying a significant financial commitment toward promoting the IT hardware sector.
3. The duration of this scheme is set for 6 years, providing a long-term framework to drive growth and development in the IT hardware industry.
4. It is anticipated that the implementation of this scheme will result in an incremental production value of Rs. 3.35 Lakh crore, showcasing the potential for substantial growth and expansion within the sector.
5. The scheme aims to attract incremental investments amounting to Rs. 2,430 crores, facilitating the infusion of capital into the IT hardware manufacturing ecosystem.
6. As a consequence of the scheme’s implementation, it is projected that there will be an incremental direct employment generation of 75,000 jobs, contributing to the enhancement of employment opportunities within the IT hardware sector.In total, the employment figure could touch even 2 lakhs when accounted for indirect jobs.

7. The revised scheme will offer an incentive of 5% on net incremental sales over the base year, of goods manufactured in India, compared to 2% earlier. There will be flexibility in choosing the base year as well. The base year can be chosen starting from will be FY23.
8. The scheme also provides for flexibility as the investments can be done over six years, instead of four years earlier. Companies opting for the scheme will get additional optional incentive – of another 3% – if they use India-made and designed components, sub-system or inputs. Also, the companies can take Indian contract manufacturers on board, and avail incentives if the contractors are producing for a single company.
9. While the final policy with its specifics is yet to be released, it is understood that for global companies, the maximum incentive has been capped at Rs 4,500 crore, Rs 2,250 crore for hybrid – which have an element of both global and domestic entities – and Rs 500 crore for domestic companies.
10. Companies opting for the scheme will get additional optional incentive – of another 3% – if they use India-made and designed components, sub-system or inputs. Also, the companies can take Indian contract manufacturers on board, and avail incentives if the contractors are producing for a single company.
11. The investments from Chinese manufacturers would also be allowed in accordance with existing regulations.
12. The scheme covers all aspects of semiconductor manufacturing, PCBs, ATMPs, component manufacturing, contract manufacturing, display panels,memory devices, power adapters etc. astutely and comprehensively. The policy is valid for 6 years with clear incentives, thresholds, domestic, hybrid and global categorisation, selection criterion and timelines.

Eligibility Criteria

 

To be eligible for this scheme, a company must:

 

1. Be a registered company in India.
2. Proposes to produce items related to Target segments
3. Apply for approval under the scheme
4. Applicant is permitted to run either brand new or continue current production facilities to produce goods for the targeted segments.
5. Companies must meet certain criteria, such as having a minimum turnover and investing in plant and machinery, among others. The eligibility criteria vary fromsector to sector.
6. Investments made by eligible companies in contract manufacturers and for attaining exclusive arrangements with component manufacturers will also be considered under the scheme.

 

Significance

India is rapidly gaining recognition as a reliable supply chain partner for prominent global companies. Leading IT hardware corporations have expressed significant interest in setting up manufacturing units within the country. This positive trend is reinforced by the robust IT services industry, which experiences substantial demand domestically. Major companies aspire to serve both the domestic market in India and utilize the country as an export hub for their products.

The PLI 2.0 scheme for the IT hardware sector aims to boost domestic manufacturing and attract large investments and jobs over the coming years and enable businesses to grow beyond regional markets. It will create additional incentives for companies to invest/set up their manufacturing base in India andfor the original equipment manufacturers (OEMs) that incorporate Indian-designed IP into their systems and their products.  It will enhance India’s position as a global technology hub for companies to drive India-designed IP and explore new growth avenues.

The scheme would foster domestic manufacturing and benefit major global manufacturers of IT hardware products such as laptops and tablets, a significant portion of which were currently being imported for consumption. This is an opportune moment to shift IT hardware manufacturing towards India.