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PRODUCTION LINKED INCENTIVE (PLI) SCHEME October 01 2021Production Linked Incentive Scheme, PLI scheme, Wh

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Production Linked Incentive (PLI) Schemes in India

The production-linked incentive (PLI) scheme was announced by the national government in March 2020 to make India a competitive player in global markets and to increase domestic manufacturing and exports. The PLI scheme aims to incentivize enterprises to sell more products created in domestic facilities. The initiative encourages international corporations to establish units in India, but it also attempts to encourage domestic enterprises to establish or expand existing manufacturing facilities, so creating more jobs and reducing the country's dependency on imports.

The government is concentrating on increasing the rate of investment in industry and providing performance-based incentives. The general concept of the PLI, as well as the macro-level aims pursued by the government, must be understood in this perspective. It will be fascinating to examine how these industries have fared in terms of investment, sales, and employment in order to meet the challenges that lie ahead for businesses when utilizing the government incentives.

What exactly is the PLI scheme?

The strategy was created for a few select industries in FY2019–20, including the manufacturing of mobile phones and related equipment, pharmaceutical ingredients, and medical devices. This was implemented with a budget of Rs. 51,311 crore (US$ 7,089 million) split over five years by the Ministry of Electronics and Information Technology (MEITY) and the Department of Pharmaceuticals. The initiative benefited 150 industrial units in FY2020, generating increased revenues of Rs. 46,400 crore (US$ 6,187 million) and demonstrating tremendous job potential over the next eight years.

As a result, the initiative has been expanded to include an extra ten 'sunrise' industries in order to strengthen the economy and India's self-sufficiency. Nirmala Sitaraman, the finance minister, unveiled the plan during the Atma Nirbhar 3.0 stimulus package for fiscal year 2020-21, with an estimated allocation of Rs. 1,45,980 crore (US$ 20,169 million) spread across five years. The following industries are included in the new scheme:

The PLI Scheme's main goals are to:

• Protect selected product areas

• Implement non-tariff measures that increase the cost of imports

• Recognize the importance of exports in the overall growth strategy, while refocusing on the domestic market.

• Encourage domestic manufacturing by providing incentives for production and encouraging capital expenditures.

• Attract core expertise and cutting-edge technology

• Ensure efficiencies by using economies of scale.

• Promote the establishment of new jobs and employment opportunities.

• Establish export centers at the district level

• Lessen the burden of compliance

• Make it easier to do business

• Lower logistical expenses

• In five years, increase local manufacturing production by Rs 3,763,150 (US$ 520 billion).

ACC Battery (Advanced Chemistry Cell)

For various global growth industries such as consumer electronics, electric cars, and renewable energy, ACC battery manufacturing represents one of the major economic opportunities in the twenty-first century. Large domestic and foreign players are likely to be enticed to create a competitive battery set-up in the country by the PLI plan for ACC batteries. The battery strategy of the scheme is to make producers more globally competitive, increase exports, create economies of scale, and develop cutting-edge products.

The ACC sector's overall financial spend is Rs. 18,100 crore (US$ 2,501 million). The NITI Aayog and the Department of Heavy Industries would be in charge of this sector.

In the following four years, the initiative is estimated to generate production and exports totaling Rs. 326,000 crore (US$ 45,048 million) and Rs. 245,000 crore (US$ 33,855 million). In four years, it is expected to bring in additional investments worth Rs. 2,700 crore (US$ 373 million), generate Rs. 15,760 crore (US$ 2,178 million) in direct and indirect revenue, and create 1, 80,000 employment. Furthermore, the government's push for data localization, the Internet of Things market, and programs like Smart City and Digital India are likely to boost electronic goods demand.

Technology and Electronics Products

India's electrical product production will be improved as a result of the PLI scheme. Semiconductor fabs, display fabs, laptops, digital notebooks, servers, IoT devices, and computer hardware components are among the permitted product lines for this sector. The plan includes production-related incentives to stimulate domestic manufacture and attract substantial investments throughout the IT hardware value chain. Eligible enterprises will get 1-4 percent incentives on net incremental sales of manufactured items under the scheme. This sector will be overseen by the Ministry of Electronics and Information Technology (MEITY). The electronics sector has a total budget of Rs. 5,000 crore (US$ 691 million).

Global companies such as Apple's contract manufacturers Foxconn, Wistrom, and Pegatron; Samsung; and local players such as Lava, Optiemus, and Dixon - committed more over Rs. 11,000 crore (US$ 1,520 million) in the first round of applications for the scheme.

Automobiles and Automobile Parts

The PLI scheme for this industry will be overseen by the Department of Heavy Industries and Public Enterprises, in collaboration with the Ministry of Commerce. Instead of just total revenue from items sent in a particular year, they propose to offer standard operating procedures based on incremental increases in export revenue from the base year. In addition, the ministries intend to change the base year for calculating incentives from FY20 to FY19. The automobile sector has received a total of Rs. 57,042 crore (US$ 7,882 million) in financial incentives.

Approximately in five-year term, the PLI scheme is estimated to rise over Rs. 100,000 crore (US$ 13,819 million) and create another 5,884,000 employment opportunities. In India, the automobile sector is a significant economic contributor. The PLI plan is expected to increase the competitiveness of the Indian automobile industry and its globalization.

Drugs manufactured by pharmaceutical companies

The pharmaceuticals scheme is meant to boost high-value product manufacture in the country and increase value addition in exports. The Department of Pharmaceuticals will be in charge of this sector's scheme. A total of Rs. 15,000 crore (US$ 2,073 million) in financial incentives has been granted to the sector. India currently sells pharmaceuticals to 200 nations throughout the world, but imports high-value patented medications for domestic use. The initiative intends to make India's pharmaceutical industry more globally competitive by lowering import costs.

Global and domestic players will be enticed to engage in high-value production under the PLI scheme. Pharma exports are expected to be worth Rs. 200,000 crore (US$ 35 billion) over the next five years. The Indian pharmaceutical sector is the worlds third-largest by volume and the 14th-largest by value. It exports 3.5 percent of all medications and medicines in the world. India has a robust ecosystem of affiliated industries and a complete ecology for developing and manufacturing pharmaceuticals.

Telecom and Networking products

The plan aims to offset telecom equipment imports as well as the ‘Make in India' drive for telecom items in the domestic market. India currently imports telecommunications and network equipment worth Rs 50,000 crore (US$ 6,909 million) per year. To address this concern, the Union Cabinet has sanctioned a maximum financial outlay of Rs. 12,195 crore (US$ 1,685 million) for domestic and overseas firms to receive production-linked incentives.

The Department of Telecom will be in charge of this sector. In the next five years, the scheme is expected to attract Rs. 3,000 crore (US$ 415 million) in investments, Rs. 244,200 crore (US$ 33,745 million) in incremental production, Rs. 1,95,360 crore (US$ 26,996 million) in goods exports, Rs. 17,000 crore in tax revenue, and 40,000 additional direct and indirect employment.

Textile products (Man-made Fibres and Technical Fibres)

The PLI plan for the textile industry is designed to provide the most financial benefits to enterprises looking to enter the textile industry. Eligible enterprises can receive up to 11% in monetary incentives for increasing production and employment in this industry, the highest of the ten sectors.

To be eligible for the scheme, new entrants must invest at least Rs. 500 crore (US$ 70 million) according to the criteria. For existing enterprises in the industry with a turnover of between Rs. 100 crore and Rs. 500 crore (US$ 14-70 million), the incentive rate is restricted at 9% of incremental production in the first year. Over the course of five years, the incentive would be gradually reduced to 5%.

Companies with a turnover of more than Rs. 500 crore (US$ 70 million) would be eligible for a 7% incentive, which would gradually decrease to 3% over five years. The Union Cabinet has allocated a maximum of Rs. 10,683 crore (US$ 1,476 million) in financial incentives for this sector. In these two textile areas – man-made fibres and technological fibres – the strategy intends to build 50-60 globally competitive champion enterprises.

The Indian textile sector is one of the world's largest, accounting for 5% of worldwide textile and garment exports, worth Rs. 673 crore (US$ 93 million). The PLI scheme will attract massive investments in the sector, particularly in the MMF segment and technical textiles, in order to drive domestic manufacture. The Ministry of Textiles will implement the strategy for this industry.

Food Products 

The Ministry of Food Processing Industry will adopt the PLI plan for the food processing industry. The goal is to improve industrial capabilities, boost exports, and introduce food processing facilities to rural and semi-rural areas. The government plans to help 2 lakh people upgrade their businesses as part of this scheme, with the goal of integrating micro-food processing businesses into the mainstream market.

Financial incentives worth Rs. 10,900 crore (US$ 1,506 million) have been set aside for this sector. PLI schemes have been identified for supporting specific product lines with strong growth potential and the ability to generate medium to large-scale employment.

Solar PV Modules with High Efficiency

Under the scheme, the government of India plans to invest Rs. 4500 crore (US$ 622 million) in the manufacturing of solar PV modules. The Ministry of New and Renewable Energy (MNRE) will be in charge of the PLI for the solar sector.

Global solar manufacturers are projected to invest Rs. 14,000 crore (US$ 1,935 million) under the scheme for the solar sector. The project, which aims to build 100 GW of solar PV manufacturing capacity in the next two years, would also boost demand for locally made components including ethylene vinyl acetate (EVA) sheets, solar glass, back sheet, and junction boxes, which will total Rs. 17,500 crore (US$ 2,418 million). This will contribute to the growth and expansion of the solar PV manufacturing ecosystem.

The scheme is expected to employ 3,000 people directly in solar panel manufacturing and 120,000 people indirectly in ancillary and associated industrial activities, packaging, shipping, and other services.

White Goods (ACs and LEDs)

The Department for Promotion of Industry and Internal Trade officially began the PLI plan for air conditioners and LED lights on April 1, 2020, with a value of Rs. 6,238 crore (US$ 862 million) (DPIIT).

The initiative is expected to generate production of Rs. 17,000 crore (US$ 2,349 million) over the following five years. This would also result in an increase in exports of Rs 64,400 crore (US$ 8,899 million) and the creation of over 100,000 employment. The initiative aims to collect Rs. 11,300 crore (US$ 1,562 million) in direct tax revenue and Rs. 38,000 crore (US$ 5,251 million) in goods and services tax revenue. In addition, qualified enterprises will get a 4-6 percent incentive on incremental sales for goods manufactured in India and covered by the target segments over the base year FY19-20.

Steel Specialty Products

Steel is a crucial industry for India, which is the world's second-largest manufacturer. A PLI plan for specialty steel will aid in the development of production capacities for value-added steel, resulting in increased total exports.

The Ministry of Steel will be in charge of this sector. The automobile sector has a total budget of Rs. 6,322 crore (US$ 874 million). The inclusion of the sector in the PLI scheme will boost investments, increase production, create jobs, and make technology upgrades easier.

The steel ministry has proposed a three-tiered incentive structure of 3%, 6%, and 9%. The PLI for each corporation will be limited to Rs. 200 crore (US$ 27.6 million). Steel kinds that are often utilised in the building, power, and agriculture industries are proposed for a 3% incentive. Color-coated steel, aluminum-zinc-coated steel, and heat-treated HR steel are among them. For tin mill-coated metal goods and electro galvanized steel, a 6% incentive is proposed. The 9% incentive will be targeted at domestic steel production of steel grades that are now imported.

Overall Impact

According to a press release published by Prime Minister Narendra Modi, the PLI scheme is expected to improve India's manufacturing output by Rs. 3,770,000 crore (US$ 520 billion) during the next five years.

The plan has been designed so that the government only pays incentives once the investment has been made, jobs have been created, and production and sales targets have been met. Furthermore, the initiative provides greater incentives to the MSME sector, which is likely to stimulate domestic manufacturing and strengthen supply chains throughout the country.

Manufacturing contributed for only 15.1 percent of India's gross value added (GVA) in FY2019-20, compared to 17.4 percent in FY2011-12, according to National Accounts Statistics. Despite considerable growth in private consumption in the country, the share of the market has shrunk. India's manufacturing sector's slowness has resulted in a strong reliance on imports and a big trade deficit.

India had a trade deficit in five of the ten PLI sectors — ACC battery production, electronics, medical equipment, solar PV manufacturing, and white goods – India had a trade deficit. PLI initiatives will enable firms move up the value chain and lead to increasing value-added exports from India in the remaining five sectors where India has an overall trade surplus.

From a balance of trade standpoint, the ten sectors considered for this strategy indicate enormous untapped potential. According to India Exim Bank Research, cumulative exports from 10 PLI sectors reached Rs. 521,000 (US$ 71.9 billion) in FY2019-20, with the potential to boost India's exports by Rs. 398,000 crore (US$ 55 billion) in FY2020-21.

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