A Union Cabinet meeting chaired by Prime Minister Narendra Modi has approved the Production Linked Incentive (PLI) Scheme for IT Hardware. The scheme proposes to provide a production-linked incentive to boost domestic manufacturing and attract large investments in the IT hardware value chain.
Here, the target segments include laptops, tablets, all-in-one PCs and servers.
Under the scheme, there will be an incentive of 4 percent to 1 percent on the net increment of goods manufactured in India. This will be valid for four years.
Currently, laptops and tablets worth about Rs 34,000 crore are purchased in India every year (in 2019-20, laptops worth $4.21 billion and tablets worth $0.41 billion, respectively, were imported). Of this, about 80-82 percent is imported from other markets such as China, Taiwan, Singapore, Malaysia and the United States.
Also read: All you need to know about the PLI scheme
The Cabinet said in a statement that this scheme will benefit major global players in the field of IT Hardware manufacturing, including laptops, tablets, all-in-one PCs and servers.
While the intent is to boost Make in India, components such as semiconductor chips may still take time to be manufactured in India. Since setting up semiconductor fabrication units to make chips could cost almost Rs 7,500 crore, many players are unlikely to invest in chip-making in India in the first phase.
What are the benefits of the PLI scheme?
The total cost of the proposed scheme is approximately Rs 7,350 crore over four years, which includes an incentive outlay of Rs 7,325 crore and administrative charges of Rs 25 crore.
The scheme is expected to enhance the development of electronics ecosystem in the country. If implemented with the incentives, India will be well positioned as a global hub for Electronics System Design and Manufacturing (ESDM) on account of integration with global value chains, thereby becoming a destination for IT Hardware exports.
Ravi Shankar Prasad, Union Minister for Electronics and Information Technology, said in a press conference on February 24 that under the PLI scheme for IT hardware, total production will be worth Rs 3.26 lakh crore over the next five years, of which about 75 per cent will be for export.
The value addition done by Indian companies in the IT and hardware sectors would increase to 20-25 per cent from 5-10 per cent currently.
Apart from building manufacturing facilities locally, the government said that this PLI scheme has the ability to create over 1,80,000 jobs (direct and indirect) over four years.
Why semiconductor fabs are critical
Industry sources said that while the PLI scheme for laptops, tablets and computers will pull global players to India, the real need is to set up semiconductor facilities that will manufacture electronic chips. These chips are the key component for these devices and are imported from China and Taiwan.
“The PLI scheme is beneficial but India needs to develop semiconductor fabs. Without that, Make In India for electronics will be incomplete,” said the head of a global semiconductor manufacturer.
Semiconductors are manufactured in a specialised facility called a fab (fabrication plant). Even a tiny speck of dust that is not visible to the naked eye can hamper a chip’s efficiency. Hence, it takes several years of experience and completely dust-free factories to produce these chips.
It is estimated that setting up a semiconductor fab from scratch with multi-level production facilities would cost almost $1 billion (Rs 7,500 crore).
Apart from uninterrupted power supply, which is the biggest challenge in setting up a semiconductor fab in India, each chip-making unit requires almost 4.8 million gallons of pure water for production.
While the electronics and IT ministry has already said that it wants semiconductor fabs to be set up in India, industry players expect it will be at least 3-5 years before such factories are set up in India considering the current infrastructure as well as investment bottlenecks.