Apple Inc., which has a market capitalization of $274 billion and is headquartered in Cupertino, California, made the announcement on March 10 that it will begin manufacturing of the 5G-compatible iPhone 12 in India. It seemed like an ordinary announcement to everyone. After all, Apple began using contract manufacturers in India in 2017 in order to begin the process of assembling iPhones of earlier generations. The answer is no.
Although it was only a baby move for Apple, it was a significant advance for the manufacturing industry in India. Foxconnn Hon Hai, Wistron, and Pegatron, three of Apple’s Taiwanese original equipment manufacturers, have decided to invest millions of dollars in expanding their facilities in India as a result of India’s new Production Linked Incentive (PLI) Scheme, which aims to reduce India’s reliance on imported goods and encourage the country’s domestic production of goods. They will transition from assembling imported parts here to producing more of the components themselves or procuring more of the components locally. Along with Apple, approximately 70 other companies have expressed an interest in utilizing the PLI Scheme to establish manufacturing facilities in one of the following three important industries: mobile and electronic component manufacturing, pharma-APIs (active pharmaceutical ingredients), KSM (key starting materials), and medical device manufacturing.
By the end of the year 2020, the applicant mobile and electronics manufacturers will have invested a total of 1,300 billion rupees, will have produced goods worth 35,000 billion rupees, and will have added 22,000 employment. The response of businesses like Apple to the Large Scale Electronics Manufacturing Scheme was so encouraging to the Centre that it inspired it to make mobile PLI the model for expanding the scheme to 12 other industries covering hundreds of different products like air-conditioners, printed circuit boards, solar photovoltaic cells, and LED lights. Apple was one of the companies that helped inspire the Centre to make this decision. The scheme offers a massive incentive of Rs 1,99,641 crore ($26.6 billion) over the next five years to companies that are willing to expand or set up plants in the 13 sectors. This is done to substitute imports, augment domestic production, increase exports, and build a manufacturing ecosystem that could provide jobs to approximately 1.9 million people over the course of the five years. If it is successful, it has the potential to place India on the path to becoming an economy worth $5 trillion.
As a component of the Covid-19 economic recovery package, the program was introduced. It encompasses the industries of automobiles and automobile components, telecommunications, pharmaceuticals, medical devices, information technology hardware, culinary products, textiles, steel, air conditioners, batteries based on advanced cell chemistry (ACC), mobile and electronic components, pharma active pharmaceutical ingredients (API), and medical devices. According to a research report compiled by CRISIL, the PLI Scheme, which targets industries that are responsible for 30–35 percent of India’s non–oil import bill, has the potential to result in a capital expenditure of 2–2.7 lakh crore over the course of two to three years and to generate revenue of 35–40 lakh crore over the course of its entire duration.
Is it possible for other industries to capture the same level of excitement as the mobile phone industry? When demand and growth both continue to lag behind in a world that has been struck by a pandemic, is it possible that a scheme that is solely driven by demand (in which the incentive is linked to incremental production and production is linked to demand) could make a difference?
But even though businesses are approaching the PLI Scheme with enthusiasm and a measure of cautious optimism, there are still a few questions that remain unanswered. To begin, the question is whether or not such interest will result in actual projects. Given that the base year for mobile phone PLI was 2019/20, it follows that the first incentive payment was expected to be paid in 2020/21. During the session for the budget, the Lok Sabha was informed that no business has yet approached the government with a claim for an incentive disbursement.
Over the years, India has provided a wide variety of inducements in the hope of attracting manufacturing investment. One of them was the suspension of taxes in certain jurisdictions. The manufacturing sector in highland states and union territories like Himachal Pradesh and Puducherry benefited from government programs like these. Then there were manufacturing parks, which offered investors not only tax breaks but also the opportunity to share in the costs of shared services and infrastructure. The export-focused businesses were the only ones eligible for the benefits provided by Special Economic Zones. The introduction of the Goods and Services Tax resulted in the rationalization of a number of different tax systems.
The PLI Scheme has many benefits, the most important of which are that it is complementary to all other schemes, that it is not location-dependent, and that it has nothing to do with taxes. In this scenario, the government will pay a certain percentage of the value of additional production that companies make, but only after the companies have satisfied predetermined yearly criteria for incremental investment and production. As a result of the PLI, businesses will receive an additional 5%–6% of what they would have received in direct compensation under normal circumstances. Although it is a supplemental incentive for businesses, the government can rest assured that it will receive additional investment, production, and employment creation in exchange for every rupee it spends on the incentive. Most significantly, it satisfies the requirements of the WTO.
The initial impetus given
The PLI Scheme for mobiles and electronic parts is based on an industry-wide commitment to increase their level of investment, as well as their level of production and their ability to collect incentives, which will, on average, amount to five percent of the incremental revenue generated each year for the duration of the scheme. Apple, Samsung, and the Indian company Lava are among the sixteen international and Indian businesses that are currently in the process of expanding their mobile phone production capabilities by investing a total of Rs 11,000 crore over the course of the next five years. While foreign players have collectively proposed the production of mobile phones with a unit price of 15,000 rupees or more using improved capacities, Indian firms together will be manufacturing another 1.24 lakh crore worth of feature and smart phones during this period. This is in contrast to the proposed production by foreign players of 9 lakh crore worth of mobile phones. Theoretically, this could imply at least Rs 36,000 crore in tax revenue for the Central government if GST is set at 18 percent (and assuming that more than half of production is exported). That is a satisfactory return on the incentives totaling Rs. 40,951 rupees to be distributed over the next five years.
The benefits go beyond revenues. The government estimates that within the next five years, the electronics industry will be responsible for the creation of 200,000 direct employment and 60,000 indirect jobs. It is anticipated that the internal value addition of mobile phones will increase from 15–20 percent to 35–40 percent as a result of this. The enthusiasm can definitely be felt. “A great number of individuals have begun speaking to us. I have spent more than one hundred crores of rupees on the purchase of plant and apparatus. According to Rajesh Agrawal, Director of Bhagwati Private Ltd, which makes mobile phones for Micromax and others, “Given the chance, I can even produce Apple devices.” The PLI Scheme for mobile phones has attracted the attention of people all over the world.
Why China is Worried
China is becoming increasingly concerned about the possibility of losing manufacturing possibilities as a result of India’s efforts to become a global factory. Industry participants claim that China, the biggest supplier of mobile phones and parts in the world, is attempting to dissuade businesses from moving their operations to India. According to a source within the business, “The Chinese government has reached out to large contract manufacturers in an effort to dissuade them from applying for the PLI Scheme.”
The government anticipates a substantial increase in the amount of exports from businesses. According to Ravi Shankar Prasad, the Union Minister for Electronics and Information Technology, “around 60 per cent of the estimated production of Rs 10.5 lakh crore over the next five years will be exports.” This amounts to approximately Rs 6.5 lakh crore.
But Why PLI?
PLI was envisaged as a means of compensating for the higher costs of manufacturing that are incurred in India in comparison to China. It is an effort to protect businesses from the higher costs that have arisen as a result of increased tax rates, finance costs, electricity tariffs, and land prices. A parliamentary commission stated not too long ago that the cost of logistics alone accounts for 13% of India’s GDP, which is a figure that is significantly higher than the figure of less than 10% seen in developed countries. The difficulties that were brought on by Covid-19 made the scheme even more helpful for the industry.
Even though the PLI Scheme does not directly encourage businesses to increase their exports, it does have the potential to help manufacturing businesses expand their operations and become more competitive, in addition to increasing exports and reducing the trade imbalance. It was a demand made by the Confederation of Indian Industry four years ago, and this action is in accordance with that demand.
Additionally, the program has the potential to lessen India’s reliance on imported primary raw materials. According to research conducted by India Exim Bank, intermediate products accounted for almost 79 percent of total imports in 2019. According to Prahalathan Iyer, Chief General Manager of the Export-Import Bank of India, “Clearly, India’s manufacturing sector has a significant dependence on imported intermediates,” which can be reduced by increased localization of manufacturing activities through the PLI Scheme. Analysis conducted by Exim Bank reveals that India’s trade deficit in 2019/20 was $40.9 billion, with more than a quarter of the merchandise trade deficit and 56.8 percent of the non-oil merchandise trade deficit being attributable to just five sectors in the PLI list: ACC battery, electronics, medical devices, solar PV, and white goods. The program is designed to encompass almost all of the top 10 import categories, with the exception of petroleum products, gems and jewelry, and fertilizers. In the next five to seven years, it has the potential to increase India’s share in the global supply chain, reduce dependence on imports (especially from China), and produce manufacturing champions. All of these outcomes are possible thanks to the potential of this initiative. When Prime Minister Narendra Modi was asked about the high expectations, he stated that the “scheme would result in increasing production by approximately $520 billion in the next five years.” This provided the context for the high expectations. But can you tell me more about the PLI?
The Scheme
AtmaNirbhar Bharat 3.0, also known as the third set of Covid-19 economic stimulus announced by Finance Minister Nirmala Sitharaman on November 12, 2020, detailed the PLI Scheme in its present capacity to cover a wide range of people and activities. The government added 10 sectors with a commitment to put aside Rs 1.46 lakh crore over five years. This was in addition to the three industries, totaling Rs 51,311 crore, that were already covered by the scheme: electronics (Rs 40,951 crore), pharmaceuticals (Rs 6,940 crore), and medical devices (Rs 3,420 crore). The Cabinet had approved PLI for Large Scale Electronics Manufacturing on March 21, 2020, four days before the first lockdown. On July 21st, pharmaceuticals and medical equipment were both included in the update.
At this time, approvals have been granted for eligible businesses in these three industries; however, the list is incomplete for the pharmaceutical and medical device markets. Cabinet approvals have been granted for six of the remaining ten industries, including pharmaceutical products such as complex generics and biopharmaceuticals (incentive of Rs 15,000 crore), information technology hardware products such as laptops, tablets, personal computers and servers (incentive of Rs 5,000 crore), telecom and networking products (incentive of Rs 12,195 crore), food processing (incentive of Rs 10,900 crore), white goods such as air conditioners and LEDs (incentive of Rs 6,238 crore), and solar
Cabinet approvals, followed by a notification with operational instructions, have the potential to take place any day for automobiles and auto components (Rs 57,042 crore), ACC batteries (Rs 18,100 crore), textile products (Rs 10,683 crore), and specialty steel (Rs 57,042 crore). (Rs 6,322 crore). Because it is time-limited, businesses will be given a predetermined amount of time to submit an application. The clearance from the government is expected to arrive within the allotted time frame in order to assist eligible companies in meeting thresholds in order to receive the incentive. The incentive will be provided to the beneficiary in the form of a straight deposit into their bank account.
The Electronics Industry Is Back on Schedule
PLI Scheme for Electronics was created out of a desire to operationalize the National Policy on Electronics 2019, which talked about positioning India as the world’s Electronics Factory. This desire led to the birth of the PLI Scheme for Electronics, which became the model for all other schemes that followed. On September 16, 2019, industry leaders representing prominent global and Indian electronic companies such as Apple, Samsung, Lava, Xiaomi, Bosch, Foxconn, Panasonic, and Wistron met with Ravi Shankar Prasad at Vigyan Bhawan in New Delhi. These companies include Apple, Samsung, Lava, Xiaomi, Bosch, Foxconn, Panasonic, and Wistron. A plan for a financial inducement was devised by Prasad’s ministry with the intention of bolstering domestic production and luring investments in the electronic value chain. This plan includes provisions for electronic components and semiconductor packaging. It offered an incentive of 4-6 percentage points on incremental revenue (over 2019/20) of products manufactured in India and covered under target segments for a period of five years beginning with the base year. This incentive was extended for the duration of the period. The conditions for eligibility included requirements for minimal additional investments and revenues. While the incremental revenue target for domestic mobile phone companies starts at 500 crore in the first year and goes up to 5,000 crore in the fifth year, the incremental revenue target for international players starts at 4,000 crore in the first year and goes up to 25,000 crore in the fifth year. Domestic companies are required to make an additional expenditure equal to Rs 200 crore over a period of four years. This equates to Rs 1,000 crore for participants from other countries. There were approximately a dozen different markets besides mobile phones, such as SMT (surface mount technology) components, isolated semiconductor devices, Printed Circuit Boards, and so on. AT&S, Ascent Circuits, Visicon, Walsin, Sahasra, and Neolync were chosen to receive incentives as part of the Specified Electronic Components Segment. On the other hand, Samsung, Rising Star, Foxconn Hon Hai, Wistron, Pegatron, Lava, Bhagwati (Micromax), Padget Electronics, UTL Neolyncs, and Optiemus Electronics were granted approval to manufacture mobile phones. The competition has officially begun. According to Bhagwatis Agrawal, the Indian administration is now aware of the appropriate course of action.
In the Sweet Spot for Pharma
The reaction to the pharmaceutical schemes – there are two packages, one is already in force, and the other is in the stage of notification – has been encouraging. One of the packages is already in effect. The first strategy, known as PLI for Critical Key Starting Materials/Drug Intermediaries and Active Pharmaceutical Ingredient, focuses on 41 products that are heavily or almost entirely dependent on imports. These products come from four different target segments. In addition to in-vitro diagnostic devices and significant medications that are not produced in India, the second one is designed to encourage creativity in the development of sophisticated and high-tech products. These products may include those that are used in emerging therapies.
“The decision made by the government came at the perfect moment, and we couldn’t be happier about it. When it comes to these products, we are dependent on China for imports 68 percent of the time. This interdependence will be reduced by 25 percent thanks to the PLI-I Scheme, and another 25 percent thanks to the PLI-II Scheme. B.R. Sikri, Chairman of the Federation of Pharma Entrepreneurs, predicts that dependence on China will be reduced to only a minimal level.
The large number of candidates demonstrates that the program is viable from a financial perspective. Only 47 of the 215 applications submitted for a total of 36 products across four market segments have been approved, with a total expenditure commitment of Rs 5,366.35 crore. In Segment I, which provides incentives to build up greenfield facilities for fermentation-based key starting materials and drug intermediates for production of medicines like penicillin G and erythromycin thiocynate, Aurobindo Pharma of Hyderabad has received the most approvals. Eleven different businesses, including Macleods Pharmaceutical for the production of rifampicin and Natural Biogenex for the production of betamethasone and dexamethasone, which are frequently prescribed medications, will produce important raw materials for key medicines. Depending on the method of production, the premium discount for this PLI policy for a period of six years ranges anywhere from ten to twenty percent. “We took a look at both our internal utilization as well as the products that were on the PLI list. We came to the conclusion that if we choose some of those products, we will have a certain amount of guaranteed commerce. According to Madan Mohan Reddy, Director of Aurobindo Pharma, the majority of these products are purchased today, with China being the primary country of origin. The business is in the process of putting the finishing touches on the land that will house the new plant.
Devices for the Medical Industry That Add Muscle
The third PLI Scheme, for medical devices, has selected businesses to participate (not all applications have been reviewed, and additional approvals are forthcoming), and investments are already being made. The size of the incentive is relatively modest in comparison to that of others; however, the impact may be substantial due to the significance of India’s need to achieve self-reliance in a number of products, including CT Scan, MRI, Ultrasonography, X-Ray, Cath Lab, Positron Emission Tomography Systems, Heart Valves, Stents, PTCA Balloon Dilatation Catheter, and heart Occluders.
These medical technology companies have been granted approval: Siemens Healthcare, Allengers Medical Systems, Wipro GE Healthcare, Nipro India Corporation, and Sahajanand Medical Technologies (SMTPL). Approximately 2,300 employees will be employed at these plants, which will require a total investment of Rs 729.63 crore. It is anticipated that the first day of commercial manufacturing will be April 1, 2022. Over the course of the next five years, applicants in each target market will be eligible to receive up to Rs. 121 crore in PLI funding.
According to Bhargav Kotadia, Managing Director of SMTPL, “The industry’s views were accepted by the government,” particularly in regard to the reduction of the threshold investment limit and criteria. His business has promised to invest Rs 166.89 crore in the production of medical devices like heart valves, stents, PTCA balloon dilatation catheters, and heart occluders. These devices are used to treat coronary artery disease. This is one of the most significant clearances included in the current batch.
The construction of the company’s new building in Telangana’s medical devices park is moving along at a rapid pace, and the company has made significant headway. It is hoped that this will become the biggest stent manufacturing and research and development facility in Asia. When operating at maximum capacity, it will be able to produce more than 1.2 million stents and two million catheters annually. ‘We will also house and develop advanced medical products in interventional cardiovascular, endovascular, and other niche devices in the CVD (cardiovascular diseases) sector,’ he adds. ‘CVD’ stands for cardiovascular diseases.
The medical device manufacturing division of Wipro GE Healthcare Private Ltd intends to make an investment of approximately Rs 100 crore over the next three to four years. “Over the course of the next few years, as dependence changes toward our local manufacturing center, there will be a natural decrease in the requirement for importing these products. According to Shravan Subramanyam, President and Chief Executive Officer of GE Healthcare in India and South Asia, “It certainly is a combination of import substitution and higher growth rate propelled by lower cost leading to additional revenues” (participation in the PLI).
Following After That
In February of 2021, the Cabinet gave its next round of approvals for three different projects. These are connected to the three functioning ones in a more or less direct manner. While the two schemes targeting IT hardware and telecom and networking products can be seen as an attempt to complete what was started with mobile phones and other electronic products last year, the pharmaceutical scheme aims to cover a much bigger universe of medicines in order to make India self-reliant in essential ingredients used in drugs that are used to save lives.
“After mobile phones, the consumption of information technology hardware is probably the biggest. According to Satya Gupta, creator and CEO of Seedeyas Innovations as well as Chairperson of the India Electronics and Semiconductor Association, PLI for this market segment has the potential to replicate the success that it had with mobile phones. The importation of laptops and tablets, whose demand is primarily satisfied by imports (with respective values of $4.21 billion and $0.41 billion in FY20), is where the program will focus the majority of its attention. Companies that are qualified for the program will receive an incentive ranging from 4% to 2% to 1% of net incremental revenue (compared to the base year of 2019/20) over the course of the program’s duration of four years. The total cost of the incentive program is 7,350 billion rupees. It is anticipated that five global players and ten domestic players will benefit from it, and that it will generate more than 1,80,000 employment within the next four years. It is anticipated that by the year 2025, the domestic value addition in IT hardware will increase to between 20 and 25 percent. “Only 15–20 percent of India’s total internal consumption is produced within the country at this time. Only thirty percent of computers are manufactured in the United States, compared to ninety to ninety-five percent for laptops and one hundred percent for servers. According to George Paul, CEO of the Manufacturers Association of Information Technology, there are presently four companies that manufacture in India. These companies are HP, Lenovo, Dell, and Acer. According to him, PLI cannot predict sudden shifts in the status quo. “When China was first getting started, it developed an integrated strategy that stitched together a number of steps that were required towards the goal of maximizing value addition in China. India is also engaging in the same activity. This is not an approach for just one year. He goes on to say that we must keep in mind the end objective.
The Taiwanese hardware and electronics giant Acer believes that the PLI Scheme will improve pricing, contribute to the creation of new jobs, and establish ecosystems that are adjacent to existing ones. Tablets and laptops are manufactured by the business in India, and they believe they have the ability to increase their production in the IT hardware sector. Acer India’s Chief Business Officer, Sudhir Goel, stated that the company does plan to apply for PLI via the vendors in its ecosystem. “We do intend to apply for PLI.”
Transmission equipment, 4G/5G Next Generation Radio Access Network and Wireless Equipment, Access & Customer Premises Equipment, Internet of Things devices, Access Devices, and other wireless and enterprise equipment such as switches and routers are the primary areas of emphasis in the telecom equipment industry. The massive amount of telecom apparatus imported each year, which amounts to more than 50,000 crore rupees, is the target for this initiative. An incentive totaling Rs. 12,195 crore will be provided to approved businesses over the course of five years.
PLI is expected to provide a fillip to component manufacturing, according to Ericsson, which was the first telecom provider to begin manufacturing telecom equipment in India, all the way back in 1994. According to Nitin Bansal, the Managing Director of Ericsson India, the business is currently awaiting the official guidelines before making a decision regarding participation. According to what he has said, “the procedure for claiming incentives and the timeframes for pay-out of incentives are important considerations.”
In the meantime, the second Pharmaceuticals Price Index (PLI) Scheme has been introduced as part of an overarching initiative to help the Indian pharmaceutical business become self-sufficient. The incentives are broken down into these three distinct categories. The first category includes biopharmaceuticals, complex generic drugs, proprietary drugs or drugs whose patents are getting close to expiring, cell-based or gene therapy drugs, orphan drugs, special empty capsules, complex excipients, phyto-pharmaceuticals, and other similar categories of products. The second part of this report includes some active pharmaceutical ingredients, key starting materials, and drug intermediates that were not included in the pharma PLI report for the previous year. The third section discusses repurposed drugs, drugs that regulate the auto immune system, as well as anti-cancer, anti-diabetic, anti-infective, cardiovascular, psychological, and anti-retroviral medications. The timeframe covered by the scheme runs from 2020/21 to 2028/29.
PLI for the food processing industry was the fourth scheme that the government announced on March 31 for implementation during 2021/22 to 2026/27 with an outlay of Rs 10,900 crore. The program will stimulate investment in the Ready to Cook/Ready to Eat, processed fruits and vegetables, marine products, and mozzarella cheese markets by providing tax incentives. The government has stated that the goals are to support the development of global food manufacturing champions, support Indian value-added food brands in international markets, increase the number of jobs that are not associated with farming, and ensure that farmers are paid remunerative prices. A number of major players, including Amul, ITC, Nestle, Britannia, and Keventer Agro, have expressed an interest in participating in the program.
PLI on white goods, primarily air conditioners, and high efficiency solar PV modules to generate additional 10,000 MW solar PV manufacturing capacity are the most recent ones to get Cabinet approval. On April 7, 2021, notification was given to both parties. “The first goal is to manufacture products in India rather than simply construct them there. At the moment, a lot of the components originate from somewhere else. In India, the market for air conditioners was approximately 7.5 million devices a year ago. Out of this total, 2.5 million were brought in from other countries, a number that has significantly decreased as a direct result of the prohibition on importing air conditioners that contain refrigerants. According to Manish Sharma, President and Chief Executive Officer of Panasonic India as well as Chairperson of the Ficci Electronics and White Goods Manufacturing Committee, value addition is very low, just about 25 percent. Sharma anticipates that the market will reach nine million this year, of which only 8.0–8.5 million will be produced domestically. At this time, there is an addition of 25 percent to the local worth. Sharma believes that within the next three years, the PLI Scheme will be able to raise this number to 75%.
The government wishes to encourage local manufacturing of solar PV panels in order to reduce the likelihood of value chain hacking. Among the anticipated benefits are a direct investment of Rs 17,200 crore in the establishment of solar PV manufacturing projects, direct employment for approximately 30,000 people and indirect employment for approximately 1,20,000 people, and the annual import substitution of products valued at Rs 17,500 crore.
Currently Pending Approval
The businesses that are keeping an eye out for possibilities in the remaining four categories – automobiles, ACC batteries, textiles, and specialty steel – are currently waiting for details regarding the scheme. In situations like these, permission from the Cabinet ought to come first. Guidelines for operations are coming up next.
The automotive business is the target of the most ambitious plan. Automobile and vehicle component manufacturers are eligible for a subsidy worth 57 042 billion rupees. Although batteries are also an essential component of the consumer electronics and renewable energy industries, a new program that aims to promote ACC batteries will cost 18.100 billion rupees because its primary goal is to assist the drive toward e-mobility.
It should not come as a surprise that the automotive business is being targeted. This industry is comprised of hundreds of large, middle, and small businesses that collectively employ 37 million people and account for nearly half of the country’s manufacturing GDP. The industry is valued at a total of 120 billion dollars. There are a few businesses in India that are on par with the best in the world, including Hero MotoCorp, Bajaj Auto, Tata Motors, Mahindra, TVS, Royal Enfield, Bharat Forge, and Motherson Sumi. Also included are the regional branches of international corporations such as Hyundai, Honda, Toyota, or Bosch. On the other hand, there is a widespread perception that over the past ten years, the industry has not advanced due to high expenses and a slowing economy and that it now requires a push. The purpose of the PLI Scheme is to accomplish exactly that.
“What is required is making it possible for our business to compete successfully on a global scale. The reasons for this are not novel; our costs are extremely high, whether we’re talking about logistics, power, or raw materials. Scale is one strategy for overcoming this challenge. “I think that is where the government is looking at incentivizing the industry so that we can attain scale on a global level,” says R.C. Bhargava, Chairman, Maruti Suzuki India. “I think that is where the government is looking at incentivising the industry.”
The expenditure of 57,042 crores of rupees will be stretched out over the fiscal years 2023 to 2027. It will encompass four separate schemes, each catering to a different market segment. There are quite a few people riding this horse. The maximum incentive that a business can receive is worth Rs 8,556 crore, and it will primarily come in the form of cash-back payments ranging from 2% to 12% of incremental sales and export revenue. On the chopping block are four additional schemes: the global sourcing scheme with a budget of Rs 7,210 crore, the vehicle champion scheme with a budget of Rs 18,075 crore, the component champion scheme with a budget of Rs 8,129 crore, and the transportation cost incentive scheme with a budget of Rs 23,628 crore. Only three of these programs are available to a business at any given time. New businesses that come into the country will be subject to a different set of regulations.
In addition, the eligibility requirements for each of these programs will be distinct. Companies will only be eligible for the global champion scheme if they have a turnover of Rs 1,000 crore (Rs 100 crore for component makers) from overseas operations, Rs 10,000 crore overall revenue (Rs 500 crore for component firms), and Rs 3000 crore global investment in fixed assets (Rs 150 crore for component industry).
While the financial advantages will be helpful, the caveats will prevent most smaller businesses from being eligible. “The PLI Scheme is expected to help both the auto and auto components industry overcome challenges of logistics and energy costs, among other challenges,” says Vinnie Mehta, Executive Director of the Automotive Component Manufacturers Association. “The PLI Scheme is expected to help both the auto and auto components industry overcome challenges.”
The purpose of the PLI scheme in textiles, also known as man-made fibre (MMF), and technical textiles is to make an attempt to save one of the most labor intensive industries from the worldwide demand slump that has been caused by Covid-19. “MMF represents a worldwide opportunity worth $200 billion. According to Sanjay Shukla, a senior executive at Triburg Apparel, an apparel sourcing solutions provider based in Gurgaon, India, “if we create a supply chain with design, product development, fabric development, and of course garmenting, we can target 10 percent of this $200 billion.” Despite having only a five percent share of the global market for textiles and apparel, India is the sixth biggest exporter of these products in the world. The PLI Scheme for Textiles offers an incentive worth 10,683 crores of rupees. “The government has announced the establishment of seven mega textile parks in addition to a PLI Scheme for the MMF segment. The manufacturing and export of MMF garments from India will increase as a result of these, according to A. Sakthivel, Chairman of the Apparel Export Promotion Council.
In the meantime, the PLI Scheme on speciality steel includes protection for coated steel, high strength steel, steel tracks, and other varieties of steel. The various parties involved are in complete agreement regarding its mission. According to Dilip Oommen, CEO of ArcelorMittal and President of the Indian Steel Association, value-added and higher-end steels will become increasingly necessary as downstream manufacturing and construction procedures become more advanced. According to him, “The specialty steel PLI Scheme will create domestic capacities for such products, meeting requirements both domestically and internationally.” He continues by saying that “the investment decisions by steel companies will depend on details of the scheme and how it dovetails with individual business plans going forward.” Although Seshagiri Rao, Joint Managing Director and Group Chief Financial Officer of JSW Steel, says that his business is eager to take part in the program, he says that he would prefer to wait until the details of the scheme are revealed. According to him, the domestic demand for products made of specialty steel that were shortlisted under the scheme could increase as a result of the increased activity surrounding high speed rail and metro rail projects.
Questions and Recommendations
Yet, concerns persist. According to the CRISIL Report, which conducted an analysis of the PLI Scheme, the scheme does not appeal to all 13 industries in the same way. For some industries, such as specialized steel and textiles, it may not be as lucrative as it is for others, such as mobile phones, electronics, telecom, and IT hardware. According to CRISIL, the ratio of incentives to capital expenditures is particularly appealing when it is above 3.5 times in industries in which India’s domestic manufacturing base is comparatively limited and the country has a high reliance on imports. In spite of this, the incentive-to-capital expenditure ratio for most industries falls somewhere between 0.5 and 1, with the exception of the white products and pharmaceutical ingredients and bulk drug industries. It is especially bad in the textile and specialized steel industries. It is also stated that the potential of the scheme to add to the industry’s domestic revenue base in FY20 is low (below 25%) in some instances. Additionally, it is stated that relatively capex-intensive segments that concentrate on domestic manufacturing and import localization will be cautious in their evaluation of opportunities. It is plain to see that the plans that were efficiently completed are the ones that make the most sense in terms of the incentives and opportunities they provide.
According to Sudhir Goel of Acer India, even though PLI provides a significant boost to the manufacturing sector in India, the existing obstacles are much more significant than the inducement. “The most significant obstacle in the information technology category will be maintaining a steady supply of raw materials and components.” We have high hopes that it will become more streamlined once more technology manufacturers start scaling up production.
The generation of sufficient demand to meet yearly growth targets in order to be eligible for the incentive is not within the control of either the government or the manufacturers. Although reforms to make it easier for businesses to operate and the dovetailing of other schemes to support manufacturing could help solve some of these issues, the key to success is not in their hands. This is one of the complaints that the Indian National Congress, the principal group in opposition, has. Gourav Vallabh, the organization’s spokesperson, was quoted as saying, “After Covid-19, when demand will possibly be at an all-time low, who will these manufacturers produce for, and why would they empty their pockets with investments immediately?” In both the short and the middle term, the PLI will not produce any beneficial results. Second, it disregards important aspects of the environment. What about the Center investing in research and development as well as infrastructure so that it can compete with low-cost countries? According to the opinions of various industry experts, India ought to be cautious of international pressure against providing additional support (such as increasing import duty) to make the nation’s manufacturing sector more competitive.
The timely implementation and release of incentives, additional interventions such as changes to customs duties (which are currently in the process of being worked on), to discourage imports and help domestic manufacturing, and the integration of the scheme with overall infrastructure support through projects such as bulk drug parks (for the pharmaceutical industry), medical device parks, and integrated textile parks are essential. The Union Budget 2021/22 addressed all of these issues as well as others. Following the COVID-19 outbreak, India’s vaccine diplomacy helped swing public opinion around the world in favor of products produced in India. Now is the moment to take action.
