Production linked incentive (PLI): A well-formulated scheme

The government's Production Linked Incentive Scheme (PLI) for large-scale electronics
manufacturing grants incentives to producers, in order for India to have a better global
standing in manufacturing and exports. Under the PLI scheme, qualified players can
receive incentives ranging from 4 per cent to 6 per cent of production value for five
years, provided that they are able to meet their investment and production value target
for each year.

What is PLI scheme?

A number of game changing reforms have been launched under the umbrella of “AtmaNirbhar
Bharat Abhiyan”(Self-Reliant India) movement launched by Prime Minister Narendra Modi to
promote ease of doing business in India. From establishing next-gen infrastructure to uplifting
exports, the government is not only focusing on strategies for businesses to bloom in India but
also providing a platform for global investors to pick India as their choice of investment
destination. One more reform is the PLI schemes which aim to bring significant turns in India’s
industrial policy.

PLI scheme was instituted by central government in April’2020 for large scale electronics
manufacturing in India. The scheme calls foreign companies to set up manufacturing units in
India. However, it also encourages local businesses to set up or expand existing manufacturing
capacity. It’s a simple and well presented scheme which incentivizes companies which
manufactures mobile phones and other electronic components like transistors, diodes, resistors
and other nano-electronic components based on incremental investments and sales year-on-
year.

The objectives of PLI can be broadly classified as follows:

 To identify and target selected product areas

 To introduce non-tariff measures in order to compete with cheap imports and making
imports expensive
 To focus more on domestic market maintaining importance of exports in overall growth
strategy
 To promote local manufacturing by offering incentives while encouraging investment
from within and outside country

Why was a scheme like PLI need of hour for growth of developing India?
Indian electronics hardware manufacturing has been lacking fair field for a while when
compared to competing nation. Historical data indicates that sector has been suffering disability
of 8.5%-11% due to inadequate infrastructure, domestic supply chain and logistics, high cost of
finance, etc.

To combat this challenge, central government introduced PLI scheme as part of National Policy
on Electronics in April 2020. It aims to position India globally for Electronics System design and
Manufacturing (EDSM) by stimulating capabilities in the nation for developing core components
and providing a growth environment for the industry to compete globally.

Which businesses are eligible for the scheme?

Eligibility criteria for businesses falling under PLI scheme is subject to thresholds of incremental
sales and incremental sales of manufactured goods. In first round of approval, three sectors
were approved in April 2020, namely:

 Schemes for Electronics Manufacturing - Mobile manufacturing and specified electronic

components
 Schemes for Pharmaceutical Manufacturing – Critical key starting material/ Drug
intermediaries and Active Pharmaceutical Ingredients
 Schemes for Medical Devices Manufacturing – Manufacturing of Medical Devices

In November’2020, 10 new sectors were announced to be given the benefit of the scheme. In
the Union Budget an outlay of INR 1.97 lakh crore has been announced  PLI schemes for 13 key
sectors for a period of 5 years starting from fiscal year (FY) 2021- 22. Find below a table
highlighting the sectors, the ministry governing them and the budget outlay.

Sectors Implementing FINANCIAL OUTLAY (INR Crs)

Ministry/Department
Mobile manufacturing and Department of 40,951
specified electronic telecommunication
components
Critical key starting material Department of 6,940
drug intermediaries, APIs Pharmaceuticals
Manufacturing of Medical Department of 3.420
Devices Pharmaceuticals
Advance Chemistry Cell(ACC) NITI Aayog and Department of 18,100
battery Heavy Industries
Electronic/Technology Ministry of Electronics and 5,000
products Information Technology
 Textile products: MMF Ministry of Textiles 10,683
segment and technical textiles
Automobiles and auto Department of Heavy 57,042
components Industries
Food Products Ministry of Food Processing 10,900
Industries
Pharmaceuticals drugs Department of 15,000
Pharmaceuticals
White goods (ACs, LEDs) Department for Promotion of 6,238
Industry and Internal Trade
Telecom and Networking Department of 12,165
Products telecommunication
High-efficiency solar PV Ministry of New and 4,500
modules Renewable Energy
Specialty Steel Ministry of Steel 6,322
Total 1,97,291

Application process and grant of incentive

The PLI scheme is designed for 5 years with financial year (FY) 2019-2020 being considered as
base year for incentive calculation. This implies that all the investments and incremental sale
that a company makes after FY20 shall be taken in account while calculating incentive to be
given. The incentive percentage vary from sector to sector.

These incentives are governed by central government through relevant ministry/departments

and will involve following process:

 Applicants to submit an online proposal with details of their investment plans

 A complete evaluation of the proposal by government appointed appraisal agencies
 Selecting investors from the pool of applications for the grant
 Disbursement of incentives on achieving the targets as mentioned during application
stage.

Let’s understand this better with help of a small example

A mobile manufacturing company called as XYZ Mobile phones plans to expand and applies for
incentive grant. The base year sale of the company is 2000 crs and targeted sales for next year
is 2200 crs. The company will receive 6% of 200 crs, i.e. 12 crores as incentive for the first year.
By the final year this incentive will come down to 4% of incremental sales.

Government’s take on PLI

“ $520 billion of production is estimated to take place in India in the next five years through PLI
alone. There is also an estimate that workforce will double in the sectors that have been given
PLI. This will help increase income and demand”, PM Modi said while addressing India Inc at the
webinar organized by the Department off Industry and International Trade and NITI Aayog. In
addition, centre aims to reduce 6,000 compliances at state and centre level to further increase
the ease of doing business. Government envisions changing the current situation of exporting
to limited products to limited countries from limited locations.

Centre is hopeful that the impact of PLI in 13 introduced sectors will not only benefit the
respective sector but will benefit the whole ecosystem. All in all, central government has laid
out a well planned scheme, crafted a smooth process and aims to uplift India as a hub of
manufacturing.

How did the industry react to PLI scheme?