The Union Cabinet approved the Production-Linked Incentive (PLI) scheme for 10 sectors on November 11. These are pharmaceuticals, automobiles and auto components, telecom and networking products, advanced chemistry cell battery, textile, food products, solar modules, white goods, and specialty steel.
"The PLI scheme across these 10 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," according to a government statement.
What is a PLI scheme?
In order to reduce India's dependence on China, the government in March announced a scheme that aims to give companies incentives on incremental sales from products manufactured in domestic units.
The scheme is applicable for mobile and allied equipment as well as pharmaceutical ingredients and medical devices manufacturing. As these sectors are labour-intesive, it is expected to cater to the growing growing employment demands of the country.
"The Government of India is taking critical economic and fiscal measures to bring the economy back on its growth track. One of such measures is introducing and extending production linked incentive schemes in various sectors. The recently approved package will boost production, exports, forex earnings and employment," Arvind Sharma, partner, Shardul Amarchand Mangaldas & Co said.
Which sectors already have PLI scheme?
The government in March made 53 bulk drugs eligible for a PLI worth Rs 6,940 crore. The scheme is expected to benefit up to 136 manufacturing units, generating incremental sales of Rs 46,400 crore and significant additional employment generation over the next eight years.
It also announced a Rs 14,000-crore package that would incentivise production of active pharmaceutical ingredients (API) and medical devices in the country. As part of the scheme, it announced a Rs 3,420-crore PLI for promoting domestic manufacturing of medical devices.
Apart from pharmaceuticals and medicines, the government also notified a PLI scheme for electronics and mobile phone sectors in accordance with the National Policy on Electronics. As part of the scheme, incentives of 4-6 percent will be given to electronics companies that manufacture mobile phones and other electronic components such as transistors, diodes, thyristors, resistors, capacitors, and nano-electronic components such as microelectromechanical systems, in India.
Why is it necessary?
It is difficult for the government to make sustained investments in capital-intensive sectors as they have a longer gestation period, according to experts.
"The PLI scheme, since it is based on incremental output, is more effective from the government’s standpoint than some of the other grant-based schemes like Mega Food Parks, etc. which are more input oriented. It is also targeted towards the larger anchor investors who are capable of mobilising the initial investment for brownfield or greenfield projects by themselves,” according to Arindam Guha, partner, leader – government & public services, Deloitte India.
The aim of a PLI scheme is to incentivise and invite global, capital-rich companies to set up capacities in India.