Performance Linked Incentive Scheme to Boost Manufacturing

The Atmanirbhar Bharat Abhiyaan (or Self-reliant India campaign) is the vision of a New India envisioned by the Hon’ble Prime Minister. In May 2020, he launched Atmanirbhar Bharat Abhiyaan and announced a Special Economic and Comprehensive Package of INR 1.46 trillion ($20 billion) – equivalent to 10 percent of India’s GDP – to combat the COVID-19 pandemic in India. The aim is to make the country and its people self-reliant and independent in every way. Economy, Infrastructure, System, Vibrant Demography, and Demand are the five pillars of Atmanirbhar Bharat.

PLI scheme and its purpose

The Production-Linked Incentive (PLI) scheme is a five-year program that aims to give companies incentives for incremental sales (over FY 2019-20) from products manufactured in domestic units for 13 sectors. The scheme invites foreign companies to establish units in India and aims to encourage domestic companies to set up or expand existing manufacturing units, as well as to create more jobs and reduce the country’s reliance on imports from other countries.

The purpose of the PLI Scheme is to protect identified product areas, introduce non-tariff measures that make imports more expensive, to acknowledge the importance of exports in overall growth strategy but to focus more on the domestic market, and promote domestic manufacturing by offering production incentives as well as encouraging both internal and external investment.

Transforming manufacturing

The Government approved the allocation of the PLI scheme for 13 champion sectors which 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. The key specific sectors include Advance Chemistry Cell Battery Storage, Mobile Manufacturing and Specified Electronic Components, Electronics/Technology products, Auto and Auto Components, Medical Devices, Key Starting Materials/Drug Intermediates and Active Pharmaceutical Ingredients, Pharmaceuticals & Drugs, Telecom and Networking products, Textile, Food Processing, High Efficiency Solar PV Module, White Goods (Air-conditions and LED), and Specialty Steel.

• Advance Chemistry Cells (ACCs) are a new generation of advanced storage technologies that can store electric energy as electrochemical or chemical energy and then convert it back to electric energy as needed. The PLI scheme for ACC battery aims to achieve a manufacturing capacity of 50 Giga Watt Hour (GWh) of ACC and 5 GWh of ‘Niche’ ACC with a INR 18,100 crore investment. The manufacturing units must be operational within two years. This scheme is expected to result in a direct investment of INR 45,000 crore in manufacturing projects and an import substitution of INR 20,000 crore per annum.
• In the Mobile Manufacturing and Specified Electronic Components Industry, 16 applications were approved with an incentive outlay of INR 36,440 crore. For the quarter ended December 2020, the applicant companies produced goods worth about INR 35,000 crore and invested around INR 1,300 crore under the scheme in the first 5 months of operation, despite challenging times. Approximately 22,000 additional jobs are expected to be created during this time.
• Manufacturing in India is expected to be worth $1 trillion, by 2025. Furthermore, the government’s push for data localization, the Internet of Things market in India, and programs like Smart City and Digital India are likely to increase the demand for Electronic Products. The PLI scheme will boost India’s electronic product production.
• The Automobile Industry in India is a significant economic contributor. The PLI scheme will increase the competitiveness of the Indian automotive industry while also promoting globalization.
• The PLI Scheme was launched with a total financial outlay of INR 3,420 crore for the period 2020-21 to 2027-28 to boost domestic manufacturing and attract large investment in the Medical Device Sector. In total, 28 applications have been received across the four target areas, which are intended to promote investment, production, exports, and employment. The government has approved 14 applications out of these, with a total committed investment of INR 873.93 crore; maximum incentive planned for disbursement: INR 1,694 crore; and a projected employment generation of around 4212.
• To achieve self-reliance and reduce import dependence in these critical Bulk Drugs - Key Starting Materials/ Drug Intermediates and Active Pharmaceutical Ingredients in the country, the PLI scheme was launched for the establishment of greenfield plants with minimum domestic value addition in four different target segments (two fermentation-based and two chemical synthesis-based) totaling 41 products with a total outlay of INR 6,940 crore for the period 2020-21 to 2029-30. The government has approved 47 of these applications, with a total committed investment of INR 5,366.35 crore and projected employment of 12140.
• The Indian Pharmaceutical Industry is the world’s third largest by volume and the 14^th largest by value. It accounts for 3.5 percent of worldwide drug and medicine exports. India has a complete ecosystem for pharmaceutical development and manufacturing, as well as a strong ecosystem of allied industries. The PLI scheme will encourage both global and domestic players to engage in high-value production.
• Telecom and Networking Equipment are vital and important components of constructing a secure telecom infrastructure, and India intends to become a major original equipment manufacturer of telecom and networking products. The PLI scheme is projected to draw huge investments from global players while also assisting domestic companies in seizing emerging possibilities and becoming major export players.
• The Indian Textile Industry is one of the largest in the world, accounting for about 5 percent of worldwide textile and apparel exports. However, India’s share in the manmade fiber (MMF) segment is low in comparison to the global consumption pattern, which is majorly in this segment. The PLI scheme will attract significant investment in the sector, helping to increase domestic manufacturing, particularly in the MMF segment and technical textiles.
• The expansion of the Processed Food Industry results in higher prices for farmers and lower levels of wastage. Specific product lines with strong growth potential and the ability to produce medium- to large-scale employment have been identified for providing support through the PLI scheme.
• Large imports of Solar PV Panels pose hazards to supply-chain resilience and present strategic security challenges due to the electronic (hackable) nature of the value chain. A focused PLI scheme for solar PV modules will motivate domestic and global players to create large-scale solar PV capacity in India, allowing India to leapfrog into the global value chains for solar PV manufacturing.
• White Goods (Air Conditioners and LEDs) have a strong potential for domestic value addition and global competitiveness. A PLI scheme for the sector will result in greater domestic manufacturing, job creation, and export growth.
• Steel is a strategically vital industry, and India is the world’s second-largest steel producer. It is a net exporter of finished steel and has the potential to be a major player in certain steel grades. A PLI scheme in Specialty Steel will aid in the enhancement of manufacturing capacities for value-added steel, increasing overall exports.

Outlook

While ease of doing business reforms and the integration of various schemes to boost manufacturing can alleviate some of these issues, the key to success is the generation of sufficient demand to achieve annual growth requirements to qualify for the incentive. Vaccine diplomacy in the aftermath of the Covid-19 crisis has shifted global sentiment in favor of Indian-made products. It is time to act.

Sector wise bifurcation of Incentives

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