The PLI Scheme – A Major Initiative for the Manufacturing Sector

India has been on the brink of major development since various new incentives for manufacturing sectors rolled out in the month of March 2020 the Production Linked Incentive Scheme or the commonly abbreviated “the PLI scheme”. PLI is an initiative started by the Government of India to not only encourage foreign companies to increase their workforce in India, thereby generating employment, but also to encourage domestic and local production in order to create micro jobs.

Before the introduction of the PLI scheme, India had faced criticism for its manufacturing related policies which were considered tedious, time consuming as well as expensive, making it difficult for companies to carry out business in an uncompetitive environment as compared to their peers in other nations.

In recent years, more specifically since the year 2020, the manufacturing sector in India has received a special push with campaigns like “Make in India” and “Atmanirbhar Plan” designed specifically to place India as a global manufacturing hub, with the PLI scheme acting as a catalyst in executing India’s ambitious plan of the “Make in India” products. The government has already set aside Rs 1.97 lakh crore (USD 244.7 million) under the PLI schemes for various sectors and an additional allocation of Rs 19,500 crore (USD 24 million) was put towards the PLI for solar PV modules in the recent fiscal budget of 2022-23.

Understanding the Scheme

When the scheme was introduced, it was initially applicable to only 3 sectors but as time passed the scheme has since expanded and multiple additional sectors were included. 14 sectors are now under the purview of the scheme and incentives involving a total outlay of Rs. 3 trillion (approximately USD 37,735 million) have been set aside by the government, with plans to expand to various other manufacturing sectors from time to time. Sectors such as automobile and auto components, electronics and IT hardware, telecom, pharmaceuticals, solar modules, metals and mining, textiles and apparel, white goods, drones, and advanced chemistry cell batteries can now benefit under the PLI scheme. It should be noted that in order for companies to receive benefits under the scheme it is essential that the company is registered in India.

The main objective of the scheme is to provide encouragement to domestic companies and establishments to set up or expand on manufacturing units in order to increase production and in return the government shall provide incentives on incremental sales. The second objective of the scheme is to neutralize the number of imports and exports in the country in a non-discriminatory manner. Thirdly, due to the vast labour force of the country, the PLI scheme will benefit the economy in creating employment and job opportunities in all sectors.

It is observed that during the pre-PLI stage, the capital incentive growth, generating income was time consuming and this was only possible for foreign entities having the capacity to hold fund for a longer duration of time. Thus with the new PLI scheme, the government is shifting its focus to boost short term, result driven industries that can potentially balance the trade into and out of the country.

The PLI scheme is intended to incentivize large domestic and global players to participate in production and lead to more inclusive growth across the country. The schemes provides eligible manufacturing companies incentives ranging from 4% to 6% on incremental sales over the base year of 2019-20 for a period of 4 to 6 years. The scheme works on providing direct payment for domestically manufactured goods by the chosen beneficiaries. The savings obtained from one sector can be appropriated towards other sectors in order to maximize returns.

The incentives being offered under the scheme shall be calculated on the basis of incremental sales, ranging from as low as 1% for the electronics and technology products to as high as 20% for the manufacturing of critical key starting material (KSM) and certain drug intermediaries.

In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, incentives to be given will be calculated on the basis of sales, performance and local value addition done over a period of five years.

Conclusion

The government has, from time to time, been accepting applications sector by sector from eligible companies desirous of obtaining the benefits. However, while there have been favourable responses received for each sector, there has been some backlash due to uncertainty and covid related delays, putting pressure on the companies, however the same have been taken into control in a timely manner.

The government does indeed have plans to open for more sectors within such schemes in order to make India a compelling manufacturing destination. While the PLI scheme is a good start in gaining ground in manufacturing, India will need more and more incentive schemes to boost its economy moving forward.

We at D’Andrea & Partners Legal Counsel constantly monitor the latest developments in the Indian market. If you want to inquire more information related to this issue, feel free to get in contact with us:info@dandreapartners.com.