What is a PLI Scheme?
- Production Linked Incentive refers to a rebate given to producers. This rebate is calculated as a certain percentage of sales of the producer (sales referred in it can be total sales or incremental sales).
- For example, the PLI scheme for the Electronics Sector offered a rebate of 4-6% on the incremental sales of the producer.
- The incentives, calculated on the basis of incremental sales, range from as low as 1 per cent for the electronics and technology products to as high as 20 per cent for the manufacturing of critical key starting drugs and certain drug intermediaries.
Key features of the PLI Scheme
- The scheme is outcome-based, which means that incentives will be disbursed only after production has taken place.
- The calculation of incentives is based on incremental production at a high rate of growth. In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, the incentive to be given will be calculated on the basis of sales, performance and local value addition done over the period of five years.
- The scheme focuses on size and scale by selecting those players who can deliver on volumes.
- The selection of sectors covering cutting-edge technology, sectors for integration with global value chains, job-creating sectors and sectors closely linked to the rural economy, is highly calibrated.
- Also, the design of the earlier PLI scheme for electronics is such that it is compatible with World Trade Organization commitments as the quantum of support is not directly linked to exports or value-addition.
Sectors Covered under PLI Scheme (14 Sectors)
- Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
- Manufacturing of Medical Devices: Department of Pharmaceuticals
- Pharmaceuticals drugs: Department of Pharmaceuticals
- Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology
- Electronic/Technology Products: Ministry of Electronics and Information Technology
- Telecom & Networking Products: Department of Telecommunications
- Food Products: Ministry of Food Processing Industries
- White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade
- High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy
- Automobiles & Auto Components: Department of Heavy Industry
- Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry
- Textile Products: MMF segment and technical textiles: Ministry of Textiles
- Specialty Steel: Ministry of Steel
- Drones and Drone Components: Ministry of Civil Aviation
PLI Scheme for IT Hardware
- The PLI for IT hardware such as laptops, tablets, all-in-one computers, and servers was first announced in February 2021 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.
- The first version of the scheme was a laggard with only two companies – Dell and Bhagwati – managing to meet first year’s (FY22) targets, and the industry called for a renewed scheme with an increased budgetary outlay.
- The Union Cabinet cleared a revised production linked incentive (PLI) scheme for IT hardware with an outlay of Rs 17,000 crore, which is more than double the budget of the scheme that was first cleared in 2021.
- Implementation: The scheme will be implemented from July 1, with a cap on maximum incentives available to participating companies.
- Tenure: The tenure of the new scheme has been fixed for six years and the Centre is expecting an investment of over Rs 2,430 crore as part of it.
- Expected Outcome: The expected incremental production value could touch Rs 3.35 lakh crore, and the scheme could generate 75,000 direct jobs – in total, the employment figure could touch 2 lakh when accounted for indirect jobs.
- Coverage: Investments made by eligible companies in contract manufacturers and for attaining exclusive arrangements with component manufacturers will also be considered under the scheme.
- Investment: It is worth noting that under the previous PLI scheme, the expected investment was pegged at Rs 2,500 crore – under the renewed plan, that projection has been reduced (to Rs 2,430 crore) despite sweetening the incentive structure.
- Incentives: The average incentive over six years will be about 5 per cent compared with the 2 per cent over four years offered earlier. Companies that locally manufacture certain components including memory modules, solid state drives and display panels will also get additional incentives under the restructured scheme. There will be flexibility in choosing the base year as well.
- Cap: 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.
Analysis of the Scheme
- The PLI scheme was conceived to scale up domestic manufacturing capability, accompanied by higher import substitution and employment generation. The government has set aside Rs 1.97 lakh crore under the PLI schemes for various sectors and an additional allocation of Rs 19,500 crore was made towards PLI for solar PV modules in Budget 2022-23.
- As of December 2022, 650 applications have been approved under 13 Schemes and more than 100 MSMEs are among the PLI beneficiaries in sectors such as Bulk Drugs, Medical Devices, Telecom, White Goods and Food Processing.
- The electronics industry continues to ascend in importance as its applications become pervasive, particularly in the socio-economic development of a country. Electronics, supported by continuously improving communication services, will significantly enhance productivity, efficient service delivery, and social transformation.
- The domestic electronics industry, as of FY20, is valued at US$118 billion. India aims to reach US$300 billion worth of electronics manufacturing and US$ 120 billion in exports by FY263, supported by the vision of a US$ 1 trillion digital economy by 2025. Improvement in manufacturing and export over the past five years ensures that India is on the right trajectory to achieve this target.
- Electronic goods were among the top five commodity groups exhibiting positive export growth in November 2022, with the exports in this segment growing YoY by 55.1%.
- The major drivers of growth in this industry are mobile phones, consumer electronics, and industrial electronics. In the mobile phone segment, India has become the second-largest mobile phone manufacturer globally, with the production of handsets going up from six crore units in FY15 to 31 crore units in FY22. These numbers are expected to improve as more domestic and global players set up and expand their bases in India.
- Participation in the PLI scheme will help many more domestic players to attain economies of scale in production through localising. Hence, this will further enhance export competitiveness and increase India’s participation in the global value chain.
- As one of the earliest ones, the ministry of electronics and information technology’s PLI scheme for large-scale electronics manufacturing (LSEM) saw successful results, with 97% of mobile phones sold in India now being made in India. Furthermore, they are also being “Made in India for the World” as we witness a sharp growth in smartphone exports by 139% over the last three years.
- As of September 2022, the PLI scheme for LSEM attracted investments of ₹4,784 crore, with a total production of ₹2,03,952 crore, while also generating 41,000 additional jobs. In the medium-term, the scheme is expected to bring in additional production to the tune of ₹10.69 lakh crore and generate 700,000 jobs.
- Similar successes are replicated in the pharma sector PLI with 35 imported active pharmaceutical ingredients or key chemical inputs for drugs being developed in India. In addition, other sectors, such as food products, telecom and networking products, and drones are reporting successes with visible growth in investment, employment, and production. Over 600 foreign and domestic firms have been selected across 14 key sectors in two years, indicating enthusiastic industry participation.
Benefits of PLI Scheme
- The renewed scheme could attract big global IT hardware manufacturers to shift their production base to India and give a boost to local production of laptops, servers and personal computers.
- It focusses on expanding India’s production and presence in Global value chains of IT hardware, servers and laptops. By deepening & broadening the electronics ecosystem in India, this scheme will play a key role in catalysing India’s tech trade and in achieving the $1 trillion digital economy goal – including $300 billion of electronics manufacturing by 2025-26.
- 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. 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.
- The successes signal that the scheme is leading to the development of a potent ecosystem that is self-sustaining and thriving.
- Focuses on advanced technologies: it is likely to upgrade the skills of the existing labour force.
- Replace technologically obsolete machinery and make the manufacturing sector globally competitive.
- Enhanced production volumes will cater to increasing consumer demand. This can be seen for telecom and networking products, where timely intervention by the scheme will enable faster adoption of 4G and 5G products across India.
- With PLI in green technologies, India can pioneer green policy implementation with a reduced carbon footprint.
- Better productivity will create a thrust in free trade agreements for better market access.
- Increased sales will demand better logistical connectivity. The PM Gati Shakti plan provides multimodal connectivity to manufacturing zones across India, making logistics and operations efficient. Cluster parks with plug-and-play infrastructure have also been introduced to support manufacturing in different regions.
PYQ 2012: What is/are the recent policy initiative(s) of Government of India to promote the growth of the manufacturing sector?
- Setting up of National Investment and Manufacturing Zones
- Providing the benefit of ‘single window clearance’
- Establishing the Technology Acquisition and Development Fund.
Select the correct answer using the codes given below:
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
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