What Is Production Linked Incentive Scheme?
Production Linked Incentive Scheme is an initiative by the Government of India. Production Linked Incentive Scheme is also known as PLI scheme. The motive of the PLI scheme is to promote foreign companies to find a workforce in our country.
Implementation of Production Linked Incentive Scheme generates employment and promotes domestic and local production to create micro-jobs. This scheme focuses on reducing import bills and improving the cost competitiveness of local goods. The scheme provides motivations to companies for enhancing their domestic manufacturing.
The Production Linked Incentive Scheme was launched by the DoT. The objective of this scheme is to boost domestic manufacturing in telecom and networking products. The scheme was were first introduced in March 2020 in India targeting three sectors.
The Production Linked Incentive Scheme concept has since expanded with schemes rolled out for multiple sectors to make India self-sufficient in manufacturing products and to cater to both domestic and international markets.
Production Linked Incentive Scheme Eligibility:
The eligibility criteria for Production Linked Incentive Scheme are not fixed. Production Linked Incentive Scheme eligibility criteria are based on the sector approved under the scheme.
For telecom units-
- The achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
- The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
- Under food processing, SMEs and others must hold over 50 percent of the stock of their subsidiaries, if any.
- The selection of SMEs is based on “their proposal, uniqueness of the product and the level of product development, etc.,” according to the Ministry of Food Processing Industries.
For businesses under medications manufacturing-
- The project has to be a greenfield project.
- The net worth of the company should not be less than 30 percent of the total committed investment.
- The proposed Domestic Value Addition (DVA) of the company should be at least 90 percent in the case of fermentation-based products.
- The proposed Domestic Value Addition (DVA) of the company should be at least 70 percent in the case of chemical synthesis-based products.
Sectors Supported Under The Production Linked Incentive Scheme:
The sectors for which the scheme has already been approved are-
- Electronic or Technology Products (Rs 5,000 crore outlay for 5 years)
- Pharmaceuticals Drugs (Rs 15,000 crore)
- Telecom and Networking Products (Rs 12,195 crore)
- Food Products (Rs 10,900 crore)
- High-Efficiency Solar PV Modules (Rs 4,500 crore)
The other four sectors under PLI awaiting Cabinet approval are-
- Automobiles and Auto Components
- Advanced Chemistry Cell (ACC) battery
- Specialty Steel
16 applications worth Rs 35,541 crore by electronics and technology product enterprises under the scheme were approved till early April and 14 applications involving Rs 873.93 crore by manufacturers of medical devices.
Applications have to be submitted to the respective ministry or department online which is followed by the disbursement process involving verification of the claim, approval of the disbursement, and final disbursement.
Working Of Production Linked Incentive Scheme:
Production Linked Incentive Scheme intent to extend the manufacturing prospect of the economy. The posts of the policy are-
- Creation of large-scale manufacturing capacity: Since the encouragements are directly proportional to production capacity/ incremental turnover, it is expected that investors will be forced to create large-scale manufacturing facilities. It is also desired to bring advancements in industrial infrastructure, helping the overall supply chain ecosystem.
- Import substitution and increase in exports: PLI schemes intend to plug the gap between the highly pitched Indian import-export basket, which is mainly illustrated by large imports of raw materials and finished goods. The Production Linked Incentive schemes are intended to enable domestic manufacture of goods, thereby inducing a reduction in dependence on imports in the short term and extending the quantum of exports from India over the long term.
- Employment generation: As large-scale manufacturing requires a large labor force, it is expected that the PLI schemes will utilize India’s abundant human capital and enable upskilling and technical education.
Incentives Involved In PLI:
An incentive of 4-6 percent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc. Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry. SMEs in the four areas such as ready to cook or ready to eat, processed fruits and vegetables, marine products, and mozzarella cheese will also be supported for manufacturing innovative and organic products, according to the ministry. For white goods too, the incentive of 4-6 percent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.
During the first five months of the scheme, the companies in electronics manufacturing, which had applied for the scheme, produced goods worth around Rs 35,000 crore and invested around Rs 1,300 crore under the scheme, the Commerce Ministry had said citing the Quarterly Review Reports for the quarter ending December 2020. For companies in white goods, the PLI Scheme is expected to see an incremental investment of Rs 7,920 crore over five years along with incremental production worth Rs 1.68 lakh crore, exports worth Rs 64,400 crore, and direct and indirect revenues of Rs 49,300 crore.
“Supporting MSMEs is not merely a financial activity, it is an act wherein the person needs better supply chain, mentorship, etc. This is the point for us to think about ease of doing business 2.0 and take it to places where the PLI scheme is being instituted and not just in bigger cities,” added Tripathi.
Plots Under Production Linked Incentive Scheme:
The first three Production Linked Incentive schemes were approved in March. Followed by 10 new schemes which were notified in November. Six schemes among these were approved later.
The scheme for individual sectors has to be implemented by the concerned ministries and departments. According to a Cabinet statement in November, an authorized sector can be operated to fund the scheme for other authorized sectors.
These schemes offer turnover-linked inducements to authorized investors, upon meeting the specified investment, capacity, and turnover criteria. Given their straightforward format and the possible advantages, they have quickly become popular with businesses. There have been rapid developments on this front, with newer schemes being launched and some others nearing closure.
1. Concluded schemes
- The initial round of PLI schemes transiting mobile phones, drugs, and medical devices attracted investments of over US$ 5 billion.
- It is suitable to note that their progress is being observed closely.
- Recognizing the need for additional capacities for some drugs and medical devices, the relevant PLI schemes have been reopened for applications till 31 August 2021.
- The scheme aimed at the IT hardware sector also marked investments worth US$ 35 million.
- It is possible to reduce dependence on imports in the electronics sector.
- The scheme for pharmaceutical drugs and in-vitro medical diagnostic devices wrapped a wide range of products as compared with its first edition.
- The bases for evaluation of the applications were revised and several scheme parameters have also been developed since its launch.
- Given the nuances involved, authorities have proactively responded to industry concerns.
- Despite the immediate modifications to the scheme, the industry resumes remaining hopeful.
2. Ongoing schemes
- White goods
Initially planned for the manufacture of finished goods such as air conditioners (ACs) and LED lights, this scheme was restructured and reported for component manufacturers of ACs and LED lights.
This scheme is open for applications until 15 September 2021. The investment and incremental sales thresholds outlined here have posed a challenge to several manufacturers as they are considered higher than the industry norms.
- Solar PV modules
The nation largely depends on imports of solar PV modules and cells. The scheme has drawn significant attention from probable investors. The success of this scheme would reduce import dependence in a strategic sector like electricity, thereby, increasing its significance.
Production Linked Incentive Scheme also encourages local procurement, thus triggering a cascading effect of the incentives. This will boost the invention of ancillary units and augment the entire solar PV manufacturing ecosystem.
The investment arising from the scheme (approximately US$ 2 billion) is expected to create an additional 10,000 MW capacity of integrated solar PV manufacturing plants. The last date for applications under this scheme is 15 September 2021.
- Specialty steel
The import of specialty steel entails a large outflow of foreign exchange at present. The scheme aims to tackle this issue at its root by promoting end-to-end manufacture. This move will potentially bring India at par with global steel giants such as Korea and Japan.
With incentives ranging from 4% to 12%, the scheme will benefit integrated steel plants as well as smaller players in the sector. The detailed guidelines for this scheme are awaited.
3. Upcoming PLI Schemes
- Advanced chemistry cells (ACC)
Renewable energy continues to be a slot space, despite its undeniable significance. Presently, there is a nominal investment in this space in India, despite the varied applications. Under the Production Linked Incentive Scheme scheme, investments will be approved through a bidding mechanism for the creation of a cumulative 50 GWh of ACC (with an additional 5 GWh for niche ACC) manufacturing facilities in India. This will support the battery requirements towards electronics, EVs, renewable energy power grids, and the like.
4. Schemes Announced Recently
India has been aiming to increase its share in global textile exports. However, this has not been possible yet due to structural disabilities. This scheme aims to incentivize the manufacture of apparel made from man-made fiber and technical textiles. Interestingly.
The textile scheme aims to promote the manufacture of apparel and not the input textiles, which are largely imported. The scheme has recently experienced some structural changes following industry feedback on investment points and other parameters. It is now expected to be announced after the next few weeks.
- Automobiles and drones
The industry has long anticipated the launch of this scheme, which was recently approved. The scheme is aimed at promoting the manufacture of electric vehicles and advanced automotive technology components of vehicles.
This scheme aims at the opening of state-of-the-art technology in the sector. It also covers drones and drone components aiming to address the strategic, tactical, and operational uses of this technology.
5. Schemes At Evaluation Stage
- Food processing
This scheme was met with an encouraging response from investors of all sizes. A key differentiator here was the inclusion of contract manufacturers, who play a key role in the sector. Currently, about 275 phrases of welfare received under this scheme are being considered and the results are awaited.
The scheme is expected to lead to the development of food processing capacity by over US$ 4 billion and exports of around US$ 3.5 billion.
This scheme intends to take the nation to become a manufacturing hub of telecom and networking equipment. This development will automatically offset the heavy reliance on imports in this niche space.
While the 36 applications received are currently being evaluated, major global players have expressed an interest to expand in India based on these incentives. The approved investors are expected to bring in an investment of US$ 40 million.