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written by | March 15, 2022

How Production Linked Incentive Scheme Boosts India’s Manufacturing Sector

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PLI measures government incentives that are directly correlated with manufacturing performances. In March 2020, three industries were targeted for the first time in India: electric components and mobile manufacturing, pharmaceutical (active pharmaceutical ingredients/critical key starting materials), and medical device manufacturing. Since then, the PLI concept has expanded to include schemes for a wide range of industries, with the goal of strengthening India's manufacturing capabilities and encouraging export-oriented production. The PLI programs are intended to strengthen local supply chains, introduce modern downstream operations, and encourage high-tech manufacturing investments. The Finance Minister, Ms Nirmala Sitharaman announced . 1.97 lakh crore outlay for the PLI scheme in her Budget speech for 2021-2022. Let us understand the resultant progress of the PLI schemes in this article.

Did you know? The PLI scheme was introduced in India to encourage indigenous production and reduce reliance on a single market or geographical region.

The Core Essence of the PLI Scheme

The Production Linked Incentive (PLI)  launched by the Government of India is aimed to increase India’s manufacturing capabilities across fourteen key sectors It also aims at generating employment for unskilled as well as skilled labour.  This production-linked incentive scheme is likely to cost about 4 trillion for at least five years.  It is also estimated to create jobs for more than 3 million individuals in India. The said sectors are selected by the government keeping in mind the increasing demand for semiconductors, electric vehicles, automobiles among many others. The raw material requirement of these sectors accounts for about 40% of India’s total imports. PLIs are monetary incentives that are essential for businesses to increase production. These could be in the form of tax breaks, reduced import and export tariffs, or lowered land acquisition requirements. These schemes are likely to increase India’s manufacturing capabilities, create more export opportunities resulting in enhanced revenues for the country.

What Are the Workings of the Production-Linked Incentive Schemes?

The PLI framework helps India to take concrete steps to expand the economy's manufacturing potential in the near term. The policy's pillars are as follows:

Building large-scale manufacturing capacities

In case the government desires to increase the production of a specific category of goods whose demand is not impressive but as a manufacturer, you think otherwise. You believe that once manufactured and sold at reasonable prices, the demand could increase. In such a scenario you will employ PLI schemes. The incentives are directly proportional to incremental turnover/production capacity.

Import substitution and increased exports

PLI schemes India aim to bridge the gap between India's highly skewed import-export basket, which is commonly dominated by imports of raw materials and finished goods. The PLI schemes are intended to encourage domestic manufacturing of goods, reducing its dependency on imports in the short term while increasing India's export volume over time.

Employment generation

Due to large-scale manufacturing necessitating a large labour force, the PLI schemes are expected to make use of India's abundant human capital and provide opportunities for upskilling and technical education.

Also Read: Government Loan Schemes For Small Businesses In India

Which Are the Industries That Are Covered by India's PLI Programs?

The PLI schemes benefit 13 different industries. These are :

Automobiles and Auto Components Sector

India's PLI scheme for automobiles and auto components has been authorised by India's federal government, with a budgeted outlay of 259.38 billion (US$ 3.50 billion) to expand domestic manufacturing capacity, including the development of electric and hydrogen fuel cell vehicles. The Ministry of Heavy Industries and Public Enterprises is in charge of the scheme's execution.

Drones Components and Drones

The government has liberalised the minimum value addition criteria for drones and drone components under the PLI Scheme, lowering it to 40% of net sales for drones and drone components. The scheme has a budget of 1.2 billion (US$ 16.13 million). The Ministry of Civil Aviation is the scheme's primary implementer.

Batteries With Advanced Chemical Cells (ACCs)

The government has set aside 181 billion (US$2.43 billion) for the scheme, which aims to establish a local manufacturing capacity of 50-gigawatt hours (GWh) of ACC and five-gigawatt hours (GWh) of Niche ACC. The scheme's principal implementers are the Department of Heavy Industries and NITI Aayog. This program is also in line with India's goal of increasing EV adoption over the next decade while reducing reliance on imports. The scheme is primarily aimed at large corporations.

Electronics and IT hardware

This plan will be implemented by the Ministry of Electronics and Information Technology. This will include items like mobile phones, particularly electrical components, laptops, tablets, all-in-one PCs, servers, and other items.

Electronics Manufacturing: This scheme is set to cost 400 billion (US$5.38 billion) for its implementation.

IT hardware: This scheme has a budget of .73.25 billion (US$984.68 million).

Food processing: The Ministry of Food Processing is the main implementing agency for this scheme, which was approved with a budget of 109 billion (US$1.47 billion). Farmers are likely to benefit from the PLI scheme in India in this sector, allowing them to tap into the sector's vast employment potential.

The Components of the PLISFPI Scheme Are as Follows

Foods that are ready-to-cook/ready-to-eat, marine goods, processed fruits and vegetables, and mozzarella cheese are all encouraged to be produced. This category includes products from small and medium-sized businesses (SMEs), such as eggs, egg products, and chicken meat, that are innovative and organic.

In June 2021, the Ministry of Food Processing closed PLI applications for the sector. The following criteria were used to evaluate applicants: 

  • Large entities that apply for incentives based on sales and investment criteria are classified as Category-I applicants. Applicants in this category could also conduct Branding & Marketing activities outside of the United States and apply for a grant through the scheme using a single application.
  • SMEs that manufacture innovative/organic products and apply for the PLI Incentive based on sales are classified as Category II.
  • Category III are applicants seeking a grant solely for the purpose of conducting international branding and marketing activities.

As of December 2021, approvals have been given to one type of applicant only.

White goods

This scheme was restructured and announced for component manufacturers of air conditioners and LED lights. It was created with the intention of producing finished items such as air conditioners (ACs) and LED lights. As the investment and incremental sales requirements described here are greater than industry norms, several manufacturers have found it difficult to match up the requirements. Applications will be accepted until September 15, 2021, for this program.

Solar PV modules

Currently, the country imports the majority of its solar PV modules and cells. The scheme, which was created to address this problem, has attracted a lot of interest from potential investors. If this PLI scheme succeeds, it will minimise reliance on imports in a critical industry like power, hence it will lead to enhance its importance.

The incentives enable local procurement in a big way. This helps promote the growth of ancillary units and boost the overall solar PV production ecosystem. An additional 10,000 MW of integrated solar PV production capacity is expected as a result of the scheme's investment (approximately US$ 2 billion). The application date for this program is September 15, 2021.

Telecom and networking products

This plan aims to bring the country closer to becoming a telecom and networking equipment manufacturing hub. This development will automatically balance out the niche's heavy reliance on imports. Major global players have expressed an interest in expanding in India based on these incentives, while the 36 applications received are currently being evaluated. An investment of US$ 40 million is expected from the approved investors.

Textiles and apparel

India has been attempting to expand its textile export market share. However, due to structural limitations, this has not yet been possible. The purpose of this program is to promote the use of man-made fibres and technological fabrics in clothing. Surprisingly, the system encourages the production of garments rather than the importation of input materials. The scheme has recently undergone some structural adjustments in response to industry comments on investment thresholds and other parameters. It will now be made public in the coming weeks.

Also Read: Top 5 Government Loan Schemes for Small Business in India

Specialty steel

Currently, the import of speciality steel results in a significant outflow of foreign exchange. By promoting end-to-end manufacturing, the scheme aims to address the problem at its source. This move could put India on par with global steel behemoths like Korea and Japan. The scheme will benefit integrated steel plants as well as smaller players in the sector, with incentives ranging from 4% to 12%. This scheme's detailed guidelines have yet to be released.

Pharmaceuticals

The PLI projects listed below help the Indian pharmaceuticals sector by increasing domestic manufacturing capacity, including high-value items, along the global supply chain. The Department of Pharmaceuticals is in charge of putting these plans into action.

Key Starting Materials (KSM), Drug Intermediates (DIs), and Active Pharmaceutical Ingredients (APIs) are all part of the PLI scheme (PLI 1.0)

Pharmaceuticals PLI Schemed (PLI 2.0)

Medical devices

Medical devices have been identified as a priority sector for the flagship 'Make in India' program, and the Indian government is committed to strengthening the manufacturing ecosystem. This scheme's PLI phase one is now complete, and phase two has been announced.

Conclusion

PLI schemes, for example, will aid in the expansion of domestic manufacturing facilities, resulting in increased import substitution and job creation. India will emerge as a preferred investment destination as a result of the long-term benefits derived from these measures. Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What happens if an applicant company fails to meet the threshold criteria for a certain year?

Ans:

Over the base year, incremental investment and incremental sales of manufactured goods (covered under Target Segments) will determine the eligibility. To be qualified for an incentive payment for the year in question, an applicant must meet certain criteria. If an applicant fails to achieve the threshold conditions for a given year, he or she will not be eligible for an incentive in that year. However, the applicant will not be barred from claiming the incentive in the following years within the Scheme's duration, as long as the qualifying criteria for those subsequent years are met.

Q: Will the applicant company receive an acknowledgement for their application?

Ans:

Once an application is submitted successfully, all the details are scrutinised minutely to detect any deviation from the said requirements. You then get a unique Application ID number by email as well as through SMS by the Project Management Agency (PMA) which is specifically appointed for this purpose by the Department of Promotion of Industry and Internal Trade (DPIIT). However, you have to remember that such an acknowledgement of an application is not an indication of approvals under the PLI Scheme.

Q: Who qualifies as a Scheme Applicant?

Ans:

A company registered in India that proposes to manufacture goods covered by Target Segments in India and submits an application for approval under the Scheme is an applicant for the Scheme. The applicant can operate a new or existing manufacturing facility to produce goods that fall within the Target Segments (i.e. mobile phones and specified electronic components). The aforementioned manufacturing can take place in one or more Indian locations.

Q: Who is eligible to apply for the PLI-WG Scheme (Production Linked Incentive Scheme for White Goods)?

Ans:

Any company incorporated in India and as defined under the Companies Act 2013, manufacturing one or more eligible product(s) under the specified target segment(s) and submitting an application for approval under the Scheme is an applicant for the Scheme.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.