Finance Minister Nirmala Seetharaman on June 28 announced a slew of economic relief measures to uplift the economy, including steps like extending the tenure of PLI schemes for large-scale electronics manufacturing, allowing for flexibility in choosing the requisite five years to meet production targets, and more.
Given the adverse economic impacts caused by the pandemic, the government has also announced drawing out the time period for companies who enrolled in the scheme in 2020-21, by a year i.e. to 2025-26. This was done considering the pandemic to be a ‘force Majeure' or unavoidable event, curbing production and manufacturing capacities for many companies.
With the government aggressively promoting the case for Aatmanirbharta and Make in India, one of their industrial development schemes that have been receiving significant attention is the PLI (Production Linked Incentive), which has been diversified across more than 10 sectors to fuel large-scale productions and reduce import reliance. Recently, Nokia and HFCL also signed up for the scheme under the telecom ministry, which has been allotted Rs 12,000 crore.
Introduced in April 2020 specifically for the electronics sector with a financial outlay of around Rs 40,000 crore, the scheme was extended to more than 10 sectors by November 2020. For the year 2021-22, the government has set aside almost Rs 1.97 crore for 13 sectors for a period of five years.
What is PLI?
Appreciated for being simple and internationally compliant, the scheme has been hailed by PM Modi, who estimated doubling of the workforce and around 520 billion dollars of production over the next five years in PLI empowered sectors.
The idea is simple, indeed. With the base year being 2019-20, incentives that are offered on an incremental sales basis differ industry-wise. But generally, the incentives will be calculated as 4-6% of incremental sales post-2020 (base year).
Tariff measures have long been the chosen way to cut down on imports, but they do little to indigenous development and improving competitiveness. Rooting for self-reliance, the scheme also looks to make manufacturing and sales, both domestic and foreign, extremely competitive. At the same time, reduced reliance on imports and developing the necessary infrastructure, encourage companies to invest in local capacity-building as well.
Companies like Samsung, Foxconn, Lava, Micromax, and more have already applied for these incentives. More than 130 companies have also submitted their applications for benefiting from the API and pharmaceutical PLI, which has been allotted almost Rs 15,000 crore. Experts estimate that if the electronics and the automobile sector deliver favorable results, the incentive payout would go over 2 trillion dollars.
However, the scheme has also been called out for some of its potential pitfalls. Dr. Ajay Dua, former Secretary in the Department of Industrial Policy & Promotion of the Ministry of Commerce and Industry, Government of India, raises caution on double-checking whether the scheme adheres to WTO (World Trade Organisation) standards or not. “It is not necessary that they hold the same view regarding trade practices as they did 10 years earlier.”He also pointed out the need for contractual obligations and independence in terms of choosing the beneficiaries. “While the government should definitely set up a framework of rules, the choice of beneficiaries should be left to independent experts and market forces. Not only will this enhance public confidence but will also eliminate chances of crony capitalism. Additionally, having proper enforcement mechanisms and timely contractual fulfillment in place will also encourage increased international investment since the ultimate focus is on improving long-term competitiveness.