6 minute read 17 Sep 2021
PLI Scheme in India

Production-linked incentive schemes in India: The journey so far

By Bhavesh Thakkar

EY India Tax and Regulatory Services Partner

Partner in Tax and Regulatory Services practice, Bhavesh focuses on state and central incentives offered in India. He enjoys singing and watching cricket.

6 minute read 17 Sep 2021

How production-linked incentives are boosting India’s manufacturing industry.

In November 2020, the Government of India announced the second edition of production-linked incentives (PLI) schemes across 10 key sectors. The PLI schemes were launched with the intention of scaling up domestic manufacturing facilities, accompanied by higher import substitution and employment generation. These facets were addressed in detail in our previous article.

These schemes offer turnover linked incentives to approved investors, upon meeting the specified investment, capacity, and turnover criteria. Given their simple structure and the likely benefits, 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.

Through this article, we take a look at the sector wise progress of the PLI schemes.

Sector wise progress of the PLI schemes

A.    Concluded schemes

The initial round of PLI schemes spanning mobile phones, drugs and medical devices attracted investments of over US$ 5 billion[1]. It is pertinent to note that their progress is being monitored 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.
Further, the scheme aimed at the IT hardware sector also drew in investments worth US$ 35 million[2], which are likely to reduce dependence on imports in the electronics sector.

The scheme for pharmaceutical drugs and in-vitro medical diagnostic devices (concluded on 31 August 2021) covered a broad range of products, when compared with its first edition. However, the bases for evaluation of the applications were revamped and several scheme parameters also  evolved since its launch. Given the nuances involved, authorities have proactively responded to industry concerns. Despite the rapid changes to the scheme, the industry continues to remain hopeful.

Read more – PLI scheme for the pharma industry likely to boost India’s bulk drug security

B.    Ongoing schemes

a.     White goods

Originally intended for the manufacture of finished goods such as  air conditioners (ACs) and LED lights, this scheme was restructured and announced for component manufacturers of ACs and LED lights. The investment and incremental sales thresholds outlined here have posed a challenge to several manufacturers as they are considered higher than the industry norms. This scheme is open for applications until 15 September 2021.

b.     Solar PV modules

Currently, the nation largely relies on imports of solar PV modules and cells. Designed to combat this issue, the scheme has drawn considerable attention from potential investors. The success of this scheme would reduce import dependence in a strategy sector like electricity, thereby, increasing its significance.
The scheme also promotes local procurement, thus triggering a cascading impact of the incentives. This will boost creation 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.

c.     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.

C.    Upcoming PLI schemes

a.     Advanced chemistry cells (ACC)

Renewable energy continues to be a niche space, despite its undeniable significance. Presently, there is nominal investment in this space in India, despite the varied applications. Under the scheme, investments will be approved through a bidding mechanism for creation of cumulative 50 GWh of ACC (with 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.

Read more – How PLI scheme for battery manufacturing will boost India’s EV market

D.    Schemes announced recently

a.     Textile

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 fibre and technical textiles. Interestingly, the scheme aims to promote the manufacture of apparel and not the input textiles, which are largely imported. The scheme has recently undergone some structural changes following industry feedback on investment thresholds and other parameters. It is now expected to be announced in the next few weeks.

Read more – How PLI will help the Indian man-made fibres and technical textiles sector

b.     Automobiles and drones

Industry has long anticipated the launch of this scheme, which was recently approved. The scheme is aimed at promoting manufacture of electric vehicles and advanced automotive technology components of vehicles. This scheme aims at the introduction 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.

Read more – How production-linked incentives can help boost India’s manufacturing sector

E.    Schemes at evaluation stage

a.     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, approximately 275 expressions of interest received under this scheme are being evaluated and the results are awaited. Overall, the scheme is expected to lead to expansion of food processing capacity by over US$ 4 billion and exports of approximately US$ 3.5 billion.

Read more – How PLI scheme for food processing is stimulating India’s manufacturing and export capabilities

b.     Telecom

This scheme intends to take the nation closer to becoming 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.

Read more – Can PLI boost domestic manufacturing in the Indian telecom sector?

Production linked incentives seem to be the way forward for federal government grants in India. In the near future, similar incentives are likely to be extended to several other products such as electronic segment for semiconductor FAB(s), display FAB(s), wearables, hearables, IoT devices and drones.

These incentives also go hand in hand with other initiatives for the manufacturing industry such as state incentives, ‘Manufacturing and Other Operations in Warehouse Regulations (MOOWR), and the 17% corporate tax rate. Viewed together, these offer composite financial support to manufacturers and should be assessed cohesively.

(Prutha Pathak, Manager, Indirect Tax, EY India has also contributed to this article).

Summary

Measures such as PLI schemes will help in scaling up domestic manufacturing facilities, accompanied by higher import substitution and employment generation. The long-term benefits derived from these measures will lead to India’s emergence as a preferred investment destination.

About this article

By Bhavesh Thakkar

EY India Tax and Regulatory Services Partner

Partner in Tax and Regulatory Services practice, Bhavesh focuses on state and central incentives offered in India. He enjoys singing and watching cricket.