The
unprecedented global economic crisis brought upon by the COVID-19 pandemic made
the world realize that globalization is essential but being self-reliant is
also important. Championing
the call for “Made in India, Made for the world”, the government is taking
steps in the right direction to create a self-sufficient nation. Addressing the
insufficiencies and challenges associated with the manufacturing hubs such as
disrupted supply chains, inadequate logistics, and lack of infrastructure, the
government plans to boost the sector, providing financial aid through
incentives and introducing favourable policy reforms. Amidst the economic
slowdown, the government instituted a Production Linked Incentive (PLI)
scheme in April 2020. The aim of the scheme is to revive the Indian
economy, get rid of India’s unemployment plague, bridge the demand and supply
gap, and increase export of Indian products in the global market.
The PLI scheme has been
designed to create a conducive environment for the manufacturing sector and
attract large investments both from within and outside the country, which could
help India’s pandemic-ridden economy to get back on track. Besides, the PLI
scheme presents lucrative opportunities for foreign companies looking to set up
or expand their existing units in India. For the PLI scheme, the government has
planned to outlay INR1.97 lakh crore covering different sectors to make
Indian manufacturers globally competitive and India a significant part of the
global supply chain. The sectors covered under the PLI scheme include
- Semiconductor Production
- Mobile Manufacturing and Specified Electronic
Components
- Critical Key Starting Materials/Drug
Intermediaries & Active Pharmaceutical Ingredients
- Manufacturing of Medical Devices
- Automobiles and Auto Components
- Pharmaceuticals Drugs
- Specialty Steel
- Telecom & Networking Products
- Electronics/Technology Products
- White Goods
- Food Processing
- Textile Products (MMF segment and technical
textiles)
- High-Efficiency Solar PV modules
- Advanced Chemistry Cell (ACC) Battery
Let us discuss the
implementation of the PLI scheme for the various sectors in brief.
Semiconductor Production
Amidst the severe semiconductor shortage faced by
industries across the globe, Union Cabinet has approved INR 76,000
crores for boosting sustainable semiconductor and display
manufacturing. The economic push will help develop a complete ecosystem for
semiconductors, from design to fabrication and packing to testing. Under the
scheme, the incentives will include a 25% subsidy on capital expenditure for
establishing a unit of compound semiconductor wafer fabrication, assembly,
testing, and packaging facilities in the country. The 76,000-crore investment
for the scheme will be spread across six years as the Centre has plans to establish
20 semiconductor units in the country over the next few years.
The Central government would work closely with the
state governments to develop high-tech clusters to fulfill the infrastructural
requirements necessary to produce semiconductors. The decision to push
investments to boost domestic semiconductor manufacturing is a major relief for
industries across sectors facing production cuts due to global chip shortages.
India has been a significant importer of microchips to meet its demand, which is
anticipated to reach around USD100 billion by 2025. However,
the investment will get companies to invest in the semiconductor space, which
will further boost the innovation sector, including fabless chip design.
Mobile Manufacturing and
Specified Electronic Components Sector
On April 1, 2020, the IT
ministry notified incentives of 4-6% to electronic companies
manufacturing electronic as well as nano-electronic components and mobile
phones on their incremental sales under the PLI scheme. According to the
scheme, companies making mobile phones in India priced at INR15,000 or
more are eligible for an incentive of up to 6% on incremental sales of all
mobile phones. Besides, an incentive of INR200 crores has been kept for the
Indian-owned companies or foreign companies registered in India making such
mobile phones within the course of the next four years. The scheme is expected
to attract foreign investment in the sector and boost the production of mobile
units in India to a large scale. If any electronic manufacturing company in
India plans to expand their existing single or multiple units at one or more
locations, the additional expenditure incurred by the organization for the transfer
of technology, R&D, machinery, or equipment will be eligible for the
incentive scheme. However, the scheme does not cover investments made by the
electronic company on land and buildings for the project.
Incentives under the PLI
scheme for the electronics sector have been availed by organizations such as
Samsung, Foxconn, Apple iPhones, Lava, Micromax, Wistron, Pegatron, Rising
Star, Paget, Optiemus, and many others. India is projected to cross USD1
trillion digital economy by 2025. With the government taking initiatives to
boost digitalization in the country by launching projects such as Smart City
and Digital India, the demand for electronic components is likely to grow
significantly. Therefore, the PLI scheme would help to fulfill the expanding
demand for electronic products in India.
Critical Key Starting
Materials/Drug Intermediaries & Active Pharmaceutical Ingredients
The government plans to
localize the manufacturing of 53 critical Active Pharmaceutical Ingredients and
Key Starting Materials to create bulk drug parks for a self-sufficient health
care ecosystem in India. Currently, India relies on a limited number of
suppliers clustered in one part of the world for the raw materials, but
effective implementation of the PLI scheme would lead to reduced dependency on
their imports. Additionally, the scheme on the promotion of bulk drug parks is
expected to increase competitiveness and provide easy access to standard
testing and infrastructural facilities. Properly managed bulk drug parks are expected
to enhance the affordability of pharma drugs and contribute to the export of
Indian products in the global market.
The PLI scheme covers the
setting up of greenfield plants with minimum domestic value addition in four
different target segments, with two in chemical synthesis and two in fermentation
based. The move comes as the first sustained step towards growing API
industries in the country. The much-needed financial investment of INR15,000
crores can be the catalyst to accelerate the growth of the pharmaceuticals
sector. Increasing focus on building R&D infrastructure and encouraging
innovation, the domestic manufacturing companies can increase the quality of
their products and compete with international products.
On May 20, 2021, the
government approved four companies to produce raw material, and each company is
responsible for the production of more than 20 products. This move would make
drug manufacturers dependent on one company for their raw materials and make
them eligible for a 10-20% incentive from the government for incremental sales
while others get no benefit from the scheme.
Manufacturing of Medical Devices
The Cabinet has approved
the application of various medical device manufacturers in India to incentivize
them under the PLI scheme, owing to the rapidly expanding healthcare ecosystem
in India. Companies that had filed for the application included Siemens
Healthcare, Sahajanand Medical Technologies, Nipro India Corporation, and Wipro
GE Healthcare. To promote the domestic manufacturing of medical devices, the
government has approved a disbursal of INR121 crore per applicant per
target segment for setting up manufacturing plants. The scheme aims to generate
employment for about 2,304 persons and make the country self-reliant to a large
extent. In addition, the Department of Pharmaceuticals has launched the PLI
scheme with an outlay of INR3420 crores for the promotion of domestic
manufacturing of medical devices.
Advanced Chemistry Cell (ACC) Battery
On May 13, 2021, the
Cabinet approved to provide financial aid worth INR18,100 crore to increase the
manufacturing capacity of Advanced Chemistry Cell (ACC) Battery Storage up to
50-GWh and ‘Niche’ ACC up to 5-GWh. Boosting the production of the new-gen advanced
storage technologies is likely to encourage e-mobility in the country, making
e-vehicles affordable and accessible. The batteries are widely used in
electrical vehicles, advanced electric grids, solar rooftops, and other
battery-consuming sectors, so the PLI scheme for expediting battery production
could reduce import dependence and revive the battery manufacturing industries
in the country. To be eligible for the incentive, the beneficiary firms will
need to achieve a domestic value addition of at least 25% and incur an
investment of INR225 crores.
The creation of ACC
batteries can reduce environmental pollution by reducing the dependence of
industries on fossil fuels for power. With the implementation of the PLI
scheme, the government is also expecting the net savings of INR2 lakh-2.5
lakh on account of a lesser amount of oil imports due to more adoption of
electric vehicles in the country.
Automobile
manufacturers
Under the PLI scheme for
automakers, the Centre has planned to roll out INR57,042 crores over five
years. Automotive manufacturers with a turnover of INR10,000 crore, exports of
INR2,000 crores, and fixed assets of INR3,500 crores are eligible for
the PLI scheme. Auto component manufacturers with a turnover of INR1,000 crore,
export of INR200 crore, and fixed assets of INR350 crore. The scheme favors
companies with greater global sourcing and delivers incentives in ascending
order from 2% to 12%. Companies with minimum incremental domestic sales revenue
of INR75 crore will get the lowest 2% cashback whereas companies with more than
INR1000 crore of incremental sales revenue will get the maximum 12%
cashback.
The eligibility criteria
are likely to favor only the 10% of big players in the automotive sector
and leave the 90% of companies who are responsible for at least 64% of the
total component manufacturing units and contribute to 32% of revenues.
The incentive scheme does not include India’s tractor industries that have been
growing their export volumes in the past few years. The government’s decision
to incentivize only “champion companies” seems like a way for improving exports
and limiting subsidies, owing to the tight fiscal situation from the economic
slowdown. However, the policymakers are yet to finalize the plan and it could
probably ease the eligibility criteria in the coming months for the incentive
program due to growing disappointment among Indian-based
automakers.
Speciality Steel
With the growing demand for
steel across various sectors such as railways, roadways, petroleum, and natural
gas, the steel ministry has planned to develop intellectual property and
technology in areas of steel to fulfill the requirements of the essential metal
in India. The outlay for specialty steel industry has been marked at INR6,322
crore for the next five years to promote the domestic manufacturing of
steel grades, that are currently imported for oil and gas industrial purposes.
Companies engaged in end-to-end manufacturing of specialty steel production are
eligible for the fiscal incentives based on achieving predetermined benchmarks
in terms of technological up-gradation, import-substitution, and employment
generation. The PLI scheme is likely to increase the supply of specialty steel
by existing producers and encourage other steelmakers to take up the production
of such steel grades so that India does not have to rely entirely upon imports
for domestic electrical equipment manufacturing. However, manufacturers of stainless
steel, TMT, and alloy steel are also looking for a share in the PLI scheme, but
the ministry has yet to consider their demands.
Telecom and Networking
products
On February 24, 2021, the
Department of Telecommunications (DoT) has notified a PLI scheme for telecom
and networking products with a financial outlay of INR12,195 crores. The
PLI scheme offers a minimum threshold of INR10 crore for MSMEs with incentives
ranging between 7% to 4% whereas, for others, the threshold extends to INR100
crores with incentives ranging between 6% to 4% of incremental sales.
Launching the scheme, the government expects an incremental production of INR2
lakh crores over the five years, which makes India a significant
contributor in the 100 billion telecom and network products market.
Telecom has remained a top
growth factor for India’s economy and contributed significantly to ensuring the
economy continues moving forward. With 5G on the anvil, the telecom industry is
expected to grow tremendously. Therefore, the government might consider
increasing the outlay by at least 50% to cater to the potential boom that
awaits the telecom sector.
Electronics/Technology
products
To reduce dependency on
Chinese electronic products, the new PLI scheme for large-scale electronics
manufacturing and IT hardware has been instituted. Promoting the domestic
manufacturing of electronic components, the government is aiming to broad-base
sourcing of electronic components and raw materials and position India as a
global hub for electronic system design and manufacturing. Creating an
environment for the industries to compete, the scheme encourages the
capabilities of indigenous manufacturers to develop core electronic components,
for which the government is providing an incentive of 4-6% to eligible
companies on incremental sales. The companies involved in testing, assembling,
marking, and packaging are entitled to incentives under the PLI scheme.
The scheme also provides a
financial incentive of 25% on capital expenditure for the pre-identified
list of electronic goods comprising products such as semiconductor, display
fabrication units, specialized sub-assemblies, and capital goods to produce
aforesaid goods.
White Goods
On April 7, 2020, the
government rolled out the PLI scheme for White Goods (Air Conditioners and LED
Lights) with a budgetary outlay of INR6,238 crore to boost domestic
manufacturing and attract investments in the White goods manufacturing value
chain, offering an incentive of 4% to 6% on incremental sales of goods made in
India for five years. The PLI scheme for white goods offers an incentive of
four to six percent on incremental sales of AC and LED lights for five years.
Companies that manufacture components or engage in sub-assembly of white goods
are eligible for the incentives provided under the PLI scheme. The primary
objective PLI scheme for white goods is to eliminate sectoral disabilities,
ensure efficiencies, and create large-scale economies to make India an integral
part of the global supply chain. Besides, the scheme is likely to create more
than 4 lakh jobs while leading to production worth INR1.68 lakh crore.
High-efficiency Photo
Voltaic (PV) Cells
The Cabinet approved a
proposal of the Ministry of New and Renewable Energy for a PLI scheme to create
an additional indigenous manufacturing capacity of 10,000 MW solar
power. Currently, India’s solar power generation depends on PV cells, which are
currently imported due to limited domestic capacity. The government has planned
to roll out INR172 billion in solar PV manufacturing projects, which is likely
to substitute imports of INR175 million every year and generate about
30,000 direct employment and 120,000 indirect employment. While solar manufacturing
is still in nascent stages, the Centre plans to reduce import dependence as
close to 75% of India’s solar power capacity is built on Chinese solar cells
and modules.
Food Processing Industry
The food processing
industry in India has a competitive advantage due to the country’s natural
resource endowment and large domestic market. To achieve the full potential and
strengthen the presence of Indian food products in the international markets,
the government has planned to roll out INR10900 crore under the PLI scheme. The
scheme has been formulated in NITI Aayog under “AtmaNirbhar Bharat Abhiyaan
for Enhancing India’s Manufacturing Capabilities and Enhancing Exports” to
improve their competitive strength advancing in terms of output productivity
and value addition in the global value chain, ensure remunerative prices to
farm produce, increase employment opportunities, and provide higher income to
farmers.
Four major food product
segments covered under the PLI scheme include cook/eat foods, processed fruits
and vegetables, marine products, and mozzarella cheese. Besides, innovative,
and organic products introduced by SMEs such as poultry meat, egg products are
also included under the scheme. The implementation of the scheme is anticipated
to facilitate the expansion of the processed food industry with an output of INR33,494
crore along with creating an employment opportunity for 2.5 lakh
people.
Textile
Products
Indian Textile & Clothing industry is one of
the largest in the world, which contributes to 12% of export earnings to
India’s export basket. Majorly driven by labor sources, the textile sector
provides over 100 million direct and indirect employments. However, the export
of Indian textiles has been stagnant in the range of USD34-39 billion
since 2013. To push the industry to its full potential, the textile industry
has been covered under the PLI scheme with a budgeted outlay of INR10,863
crore. With the implementation of the PLI scheme, the government plans to build
large-scale production of downstream products and enhance India’s manufacturing
capabilities. The scheme may cover 40 product categories in man-made fiber and
10 products in the technical textile segment. The benefits would be beneficial
for both greenfield as well as brownfield investments, but the rate of
incentives would range between 11% to 3% over the five years.
The proposed scheme does not cover the fabrics such
as viscose, polyester, and nylon which are used to manufacture apparel.
Currently, the government is discussing with various industry spokespersons and
considering challenges to make the scheme a hit for India’s textile industry
success.
Conclusion
The simplification of
procedures, financial investments, minimizing bureaucratic hassles, and
favorable reforms are likely to ramp up domestic production and complement the
government’s efforts of being “Atmanirbhar”. However, the sectors that do not
get incentives are at a comparative disadvantage, and the government needs to
work double hard for businesses to flourish on another side of the spectrum.
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