Performance Linked Incentive (PLI) Scheme and its impact on Manufacturing
Objective:
Atmanirbhar Bharat Abhiyaan or Self-reliant India campaign is the vision of new India envisaged by the Hon’ble Prime Minister on May 2020 giving a kick start to the Atmanirbhar Bharat Abhiyaan (Self-reliant India campaign) and announced the Special economic and comprehensive package of 1.46 trillion rupees ($20 billion) – equivalent to 10% of India’s GDP – to fight COVID-19 pandemic in India.
The aim is to make the country and its citizens independent and self-reliant in all senses. The five pillars of Aatma Nirbhar Bharat are – Economy, Infrastructure, System, Vibrant Demography, and Demand.
Performance Link Incentive (PLI) Scheme:
Production-Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on incremental sales (over FY 2019-20) from products manufactured in domestic units for 13 sectors for 5 years. The scheme invites foreign companies to set up units in India, however, it also aims to encourage local companies to set up or expand existing manufacturing units and also to generate more employment, and cut down the country’s reliance on imports from other countries.
Purpose of the PLI Scheme:
- To protect identified product areas
- To introduce non-tariff measures that make imports more expensive.
- To acknowledge the relevance of exports in overall growth strategy but focus more on the domestic market
- To promote manufacturing at home by offering production incentives and encourage investments both from within and outside.
The sector-wise Bifurcation of Incentives:
| Govt approved the allocation of PLI for 13 champion sectors | |
| Sectors | Rs. Crore |
| Advance Chemistry Cell Battery Storage | 18100 |
| Mobile Manufacturing and Specified Electronic Components | 40995 |
| Electronics/ Technology products | 5000 |
| Auto and Auto Components | 57042 |
| Medical Devices | 3420 |
| Key Starting Materials/ Drug Intermediates and Active Pharmaceutical Ingredients | 6940 |
| Pharmaceuticals & Drugs | 15000 |
| Telecom and Networking products | 12195 |
| Textile | 10683 |
| Food Processing | 10900 |
| High-Efficiency Solar PV Module | 4500 |
| White Goods (Air-conditions and LED) | 6238 |
| Speciality Steel | 6322 |
Impact on Manufacturing:
The PLI scheme across these 13 key specific sectors will make Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology; ensure efficiencies; create economies of scale; enhance exports and make India an integral part of the global supply chain.
- Advance Chemistry Cell (ACC)s are the new generation of advanced storage technologies that can store electric energy either as electrochemical or as chemical energy and convert it back to electric energy as and when required. The PLI scheme for ACC battery is aimed at achieving manufacturing capacity of Fifty (50) Giga Watt Hour (GWh) of ACC and 5 GWh of “Niche” ACC with an outlay of Rs.18,100 crore. The manufacturing units have to be set up within 2 years. A direct investment of Rs. 45,000 crore in manufacturing projects and an import substitution of Rs.20,000 crore per annum, are some of the expected outcome of this scheme.
- 16 applications were approved under Mobile Manufacturing and Specified Electronic Components Industry with an incentive outlay of INR 36,440 crore. For the quarter ended December 2020, in the first 5 months of scheme operation and despite challenging times, the applicant companies have produced goods worth ~INR 35,000 crore and invested ~INR 1,300 crore under the scheme. Additional employment generation during this period stands at around 22,000 jobs.
- India is expected to have a manufacturing of USD 1 trillionby 2025. Additionally, the Government’s push for data localization, Internet of Things market in India, projects such as Smart City and Digital India are expected to increase the demand for electronic products. The PLI scheme will boost the production of electronic products in India.
- The automotive industry is a major economic contributor in India. The PLI scheme will make the Indian automotive Industry more competitive and will enhance globalization of the Indian automotive sector.
- In order to boost domestic manufacturing, attract large investment in Medical Device Sector, the PLI Scheme was launched with a total financial outlay of Rs.3,420 cr. for the period 2020-21 to 2027-28. In total 28 applications have been received spread across the 4 target segments which are expected to boost investment, production, exports and employment. Out of these,14 applications have been approved by the Government, with a total committed Investment of Rs.873.93 crore; Maximum Incentive proposed for disbursement: Rs.1,694 crore and expected employment generation of about 4212.
- With an objective to attain self-reliance and reduce import dependence in these critical Bulk Drugs – Key Starting Materials/ Drug Intermediates and Active Pharmaceutical Ingredients in the country, PLI scheme was launched for setting up greenfield plants with minimum domestic value addition in four different target segments (In Two Fermentation based and Two Chemical Synthesis based) totalling 41 products with a total outlay of Rs. 6,940 cr. for the period 2020-21 to 2029-30. Out of these, 47 applications have been approved by the Government, with a total Committed Investment of Rs. 5,366.35; and expected to generate employment of around12140.
- The Indian pharmaceutical industry is the third largest in the world by volume and 14th largest in terms of value. It contributes 3.5% of the total drugs and medicines exported globally. India possesses the complete ecosystem for development and manufacturing of pharmaceuticals and a robust ecosystem of allied industries. The PLI scheme will incentivize the global and domestic players to engage in high value production.
- Telecom and networking equipment form a critical and strategic element of building a secured telecom infrastructure and India aspires to become a major original equipment manufacturer of telecom and networking products. The PLI scheme is expected to attract large investments from global players and help domestic companies seize the emerging opportunities and become big players in the export market.
- The Indian textile industry is one of the largest in the world and has a share of ~5% of global exports in textiles and apparel. But India’s share in the manmade fibre (MMF) segment is low in contrast to the global consumption pattern, which is majorly in this segment. The PLI scheme will attract large investment in the sector to further boost domestic manufacturing, especially in the MMF segment and technical textiles.
- The growth of the processed food industry leads to better price for farmers and reduces high levels of wastage. Specific product lines having high growth potential and capabilities to generate medium- to large-scale employment have been identified for providing support through PLI scheme.
- Large imports of solar PV panels pose risks in supply-chain resilience and have strategic security challenges considering the electronic (hackable) nature of the value chain. A focused PLI scheme for solar PV modules will incentivize domestic and global players to build large-scale solar PV capacity in India and help India leapfrog in capturing the global value chains for solar PV manufacturing.
- White goods (air conditioners and LEDs) have very high potential of domestic value addition and making these products globally competitive. A PLI scheme for the sector will lead to more domestic manufacturing, generation of jobs and increased exports.
- Steel is a strategically important industry and India is the world’s second largest steel producer in the world. It is a net exporter of finished steel and has the potential to become a champion in certain grades of steel. A PLI scheme in Specialty Steel will help in enhancing manufacturing capabilities for value added steel leading to increase in total exports.
While ease of doing business reforms and dovetailing of other schemes to support manufacturing can address some of these problems, the key to success – generation of sufficient demand to meet annual growth targets to avail the incentive is the need of the hour.
The vaccine diplomacy post-Covid-19 crisis has turned the global mood in favor of India-made products. It’s time for action.
Source – VDMA India