Production-Linked Incentives by the Indian Government – Objectives & Challenges

What are the objectives of the PLI scheme – and which manufacturing sectors will be most impacted by it? Let us discuss that.

Feb 08, 2021 12:02 IST India Infoline News Service

In an attempt to boost electronics manufacturing in the country, India’s Ministry of Electronics & Information Technology (MeitY) launched the Production-linked Incentives program (or PLI) on April 1st this year. As part of the Make in India initiative, PLI is aimed at making the country the manufacturing hub for mobile phones and other electronic equipment.

Under this scheme, incentives of up to INR 1.45 lakh crores would be offered to 10 manufacturing sectors in the country – for a period of 5 years (starting from the financial year 2019-20).

What are the objectives of the PLI scheme – and which manufacturing sectors will be most impacted by it? Let us discuss that.

Objectives of the PLI Scheme
Image source: Business Standard
The primary objective of the PLI scheme is to boost India’s position as a global manufacturer, promote its exports, and put the country on the global supply chain map. Under this scheme, electronic companies will receive incentives of between 4 to 6% - if they manufacture mobile phones and other electronic items in India. This will, in turn, boost foreign investments into the IT/ Electronics sector in the country and encourage Indian manufacturers to expand their facilities.

10 Manufacturing Sectors in the PLI Scheme

Here is the list of 10 manufacturing sectors - along with the responsible ministry and the approved financial outlay - under the PLI scheme:

Image source: Transfin

1. Automobile & Auto Parts
● Ministry: Dept. of Heavy Industries
● Financial outlay (in crores): INR 57,042

2. Advanced Chemical Cell
● Ministry: NITI Aayog & Dept. of Heavy Industries
● Financial outlay (in crores): INR 18,100

3. Pharmaceutical Drugs
● Ministry: Dept. of Pharmaceuticals
● Financial outlay (in crores): INR 15,000

4. Telecom & Networking Products
● Ministry: Dept. of Telecom
● Financial outlay (in crores): INR 12,195

5. Food Products
● Ministry: Food Processing Industries
● Financial outlay (in crores): INR 10,900

6. Textile Products
● Ministry: Ministry of Textiles
● Financial outlay (in crores): INR 10,683

7. Specialty Steel
● Ministry: Ministry of Steel
● Financial outlay (in crores): INR 6,322

8. White Goods (ACs and LED)
● Ministry: Dept. for Promotion of Industry & Internal Trade
● Financial outlay (in crores): INR 6,238

9. Electronics/ Technology Products
● Ministry: Ministry of Electronics & Information Technology
● Financial outlay (in crores): INR 5,000

10. High Efficiency Solar PV Modules
● Ministry: Ministry of New and Renewable Energy
● Financial outlay (in crores): INR 4,500

PLI Scheme – Impact on Major Sectors

Next, let us look at the potential impact of the PLI scheme on the following major manufacturing sectors:

● Automobile industry
The highest financial outlay of over INR 57,000 crores has been earmarked for the Indian automobile industry. Currently, the industry is meeting its supplies by importing advanced auto parts like electric vehicle components and injectors from foreign manufacturers. The PLI scheme is aimed to encourage automobile manufacturers to invest in manufacturing automobile parts in India – and become a global exporter.

● Food processing
According to Adi Godrej of Godrej Group, “the PLI scheme will completely revolutionize the food processing industry in India.” Through both domestic and foreign investments, the scheme would increase India’s global share in total farm produce – that is currently only at 7%.

● Steel
TV Narendran of Tata Steel is of the opinion that the PLI scheme will be a “game-changer” for the Indian steel manufacturing industry. This scheme will incentivize the production of specialty steel in India – which will lead to an increase in total exports.

● Electronics
Under this scheme, electronic manufacturers will receive incentives of 4% to 6% - if they manufacture smartphones and other components like transistors, resistors, and diodes in India. Global manufacturers will get an incentive of up to 6% (or INR 15,000 crores) if they manufacture smartphones in India. India-based mobile phone companies can avail of an incentive of INR 200 crores over the next 4 years.

Which Investments Are Eligible?
All Indian manufacturers – who have a registered manufacturing facility in India – are eligible for the PLI scheme. To avail of this incentive scheme, companies need to invest in plant, machinery, technology, or R&D.

Following the announcement, global mobile phone manufacturers like Samsung, Foxconn, and Wistron have also applied to avail benefits under the PLI scheme.

Challenges

The PLI scheme will have its share of challenges in the coming years, as outlined below:

● Security concerns could arise with Chinese manufacturers – because of India partnering with countries like UK and Japan and preventing Chinese telecom companies from building 5G infrastructure in those markets.
● Incompatibility with the World Trade Organization norms could arise if the PLI scheme is not in line with boosting global exports and value addition.
● The PLI scheme must be kept temporary – as these incentives could slow down growth in the 10 benefiting industries if they are continued for an extended period.

Conclusion
Overall, the PLI scheme by the Indian government is a great boost to Indian manufacturing and exports and will improve the overall business environment. Additionally, it will attract foreign investments into India’s manufacturing sector and increase employment. Among the long-term challenges, these incentives must only be given a temporary run – to allow these industries to mature and grow on their own strength.

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