India: Production Linked Incentive Scheme: Improving India's Ecosystem For Investments In Manufacturing Sector

1. INTRODUCTION

In 2014, the Government of India ("Government") had announced the Make in India‟ initiative ("Make in India") to facilitate investment, foster innovation, enhance skill development, protect intellectual property and provide an impetus to the manufacturing sector in the country. Initially, Make in India was largely focussed towards few specific sectors such as electronics, automobiles etc. where the Government offered a multitude of incentives such as capital subsidy and funding assistance for aiding investments in such sectors. With the increasing inflow of investment in such selected sectors, the Government identified the need to widen the coverage of the initiative by introducing schemes/incentives for other sectors as well.

To further the objective of attracting investments in the manufacturing sector and to create large scale manufacturing ecosystem in the country, the Government has launched Production Linked Incentive Scheme ("PLI Scheme") as part of Make in India. The PLI Scheme provides incentives either in form of cash incentive (disbursed through direct bank transfer) or by way of any other adjustment mechanism to the selected investors. The incentives offered are based upon the eligibility criteria of the investors which includes factors such as incremental sales/ turnover (which means sales of manufactured goods over a given period minus sales of manufactured goods in the base year), incremental investments(which means investment made after the end of the base year) and investment commitment. The type of investment depends on the sector in which an applicant falls. For eg., the sectoral scheme pertaining to Food Processing provides that the investment threshold would be met by considering the amounts invested in Plant & Machinery in the first two years of the Scheme. The Government has approved budget allocation of approximately INR 1.97 lakh crores (approx.US $ 26.52 billion) for implementation of the PLI Scheme pursuant to which manufacturing companies in identified sectors will be entitled to claim certain incentives¹. Further, the PLI Scheme also aims to reduce reliance on imports (while capturing the growing demand in the domestic market), increase the quantum of exports and intends to facilitate generation of more employment by increasing manufacturing facilities in the country.

The PLI Scheme was launched in two tranches with the first tranche being announced in March 2020 and the second tranche in November 2020. The first tranche covered 3 (three) sectors which were: (i) large scale electronics, (ii) critical key starting materials ("KSMs")/ drug intermediaries & active pharmaceutical ingredients ("APIs") and (iii) medical devices. In the second tranche, the ambit of PLI Scheme was expanded to10 (ten) additional sectors including telecom, textile, automobiles and auto components, specialty steel, advance chemistry cell, solar photovoltaic modules and white goods such as LEDs and air conditioners². Recently, the Government has also notified the PLI Scheme for drone and drone components.

2. SECTORAL ANALYSIS

The PLI Scheme provides support under 14 (fourteen) key sectors in order to enhance manufacturing capabilities. It may be noted that the application window for majority of the sectors has already been closed so, new applicants might not be eligible to apply under the PLI Scheme for such sectors unless the concerned department/ministry further invites the applications. In this section, we will focus on nuances of the schemes announced for each sector.

2.1 Electronics

The electronics industry in India has witnessed a significant increase in demand of electronic products. However, as per industry estimates, the Indian electronics manufacturing industry suffers from a disability of around 8.5% to 11% due to various factors, which include, inter alia, lack of adequate infrastructure, supply chain and logistics and high cost of finance as compared to the competing nations. The Government has been putting in efforts to create a conducive environment for companies to explore manufacturing of electronics in India and in furtherance of this objective, PLI Schemes for (a) large scale electronics; and (b) IT hardware have been formulated by the Government.

2.1.1 PLI Scheme for Large Scale Electronics Manufacturing³

The PLI Scheme for manufacturing of large-scale electronics was notified on April 1, 2020.Till now, the applications from the eligible companies were invited in 2 (two) rounds. The application window for the first round was closed on July 31, 2020 and for the second round on March 31, 2021.As per the scheme, the application window may be reopened again during the tenure of the scheme based on the industry response. In any event, we have provided a brief overview of the scheme in Annexure 1.

2.1.2 PLI Scheme for IT Hardware⁴

The PLI Scheme for manufacturing of IT hardware was notified on March 03, 2021. The period of submission of applications under the scheme was closed on April 30, 2021. However, the application window may be reopened again during the tenure of the scheme based on the industry response. In any event, we have provided a brief overview of the scheme in Annexure 2.

2.2 Pharmaceuticals

India accounts for 20% of global supply of generic drugs and 62% of global demand for vaccines⁵. However, it is still dependent on imports of bulk drugs, patented drugs and medical devices. In order to boost domestic manufacturing and bolster foreign investment in the pharmaceutical sector, PLI Scheme for (a) critical KSMs/drug intermediaries &APIs; (b) manufacturing of medical devices; and (c) pharmaceuticals, was launched by the Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers.

2.2.1 PLI Scheme for Critical KSMs/Drug Intermediaries &APIs⁶

The PLI Scheme for critical KSMs/drug intermediaries and APIs was notified on July 21, 2020. The applications were invited till November 30, 2020in the initial round. Later, the applications for certain products under the target segment was further invited and which was closed on August 31, 2021. In any event, we have provided a brief overview of the scheme in Annexure 3.

2.2.2 PLI Scheme for Medical Devices⁷

The PLI Scheme for domestic manufacturing of medical devices was notified on July 21, 2020.The applications were invited till November 30, 2020 in the initial round. Later, the applications for certain products under the target segment was further invited and which was closed on August 31, 2021.In any event, we have provided a brief overview of the scheme in Annexure 4.

2.2.3 PLI Scheme for Pharmaceuticals⁸

The PLI Scheme for pharmaceuticals was notified on March 03, 2021. The period of submission of applications under the scheme was opened till August 31, 2021. In any event, we have provided a brief overview of the scheme in Annexure 5.

2.3 Telecom⁹

With the growing focus of the Government on digital connectivity, the need for telecom infrastructure has become prominent in the country. The PLI Scheme for promotion of telecom and networking products manufacturing in India was notified on February 24, 2021. The applications were invited till July 3, 2021 and the application window is now stand closed. In any event, we have provided a brief overview of the scheme in Annexure 6.

2.4 Food Processing¹⁰

India has substantial presence in global food and grocery market and is ranked amongst the top 5 countries in the world for production of milk, egg, fish, etc11.The PLI Scheme for food processing industry was launched to promote global food manufacturing industry, promote Indian food product brands and to generate employment for off-farm jobs. The scheme was notified on May 02, 2021 by the Ministry of Food Processing Industries. The application window under the scheme was closed on June 24, 2021.In any event, we have provided a brief overview of the scheme in Annexure 7.

2.5 White Goods¹²

The PLI Scheme for White Goods (Air Conditioners and LED Lights) was launched with an aim to boost domestic manufacturing of white goods, achieving economies of scale, increasing export and employment generation. The scheme was notified on April 16, 2021 and the period of submission of applications was closed on September 15, 2021.In any event, we have provided a brief overview of the scheme in Annexure 8.

2.6 High Efficiency Solar Photovoltaic Modules¹³

India relies primarily on solar energy as a source for renewable energy. It depends on imported solar photovoltaic cells and modules to build its solar energy capacity as the domestic manufacturing industry has limited capacity. Currently, India is ranked 3rd in renewable energy country attractive index. The PLI Scheme for manufacturing of high efficiency solar photovoltaic modules was notified on April 28, 2021, with an aim to reduce reliance on imports in the renewable energy sector and promote domestic manufacturing. The period of submission of applications under the scheme was closed on June 30, 2021.In any event, we have provided a brief overview of the scheme in Annexure 9.

2.7 Specialty Steel¹⁴

The specialty steel manufacturing industry in India suffers from sectoral disabilities such as skilled knowledge and huge finance and thus, India imports majority of the specialty steel. The PLI Scheme for specialty steel in India was launched to promote domestic manufacturing of specialty grade steel and help to remove sectoral disabilities in terms of technology and skilled workforce. The scheme was notified on July 29, 2021 by the Ministry of Steel. Also, the Ministry of Steel has notified the guidelines for PLI Scheme for speciality steel on October 20, 2021¹⁵. The applications are to be submitted within 90 (ninety) days from the date of notification of guidelines i.e. October 20, 2021The key aspects of the scheme are as follows:

Tenure: 5 (five) years.

Target segment: Covers manufacturing of 5 (five) product categories consisting of (a) coated/plated steel products, (b) high strength/wear resistant steel, (c) specialty rails, (d) alloy steel products and (e) steel wires, and electrical steel.

Incentives offered: In the range of 3% to 15% on incremental production over the base year (i.e. financial year 2019-2020). A total incentive outlay of INR 6,322 crore (approx. US $ 0.85 billion) has been proposed for the tenure of the scheme. The incentive slabs proposed under the scheme are based on the current level of production i.e., higher incentive for those specialty grades which are currently either not produced in India or are produced in small quantities resulting in relatively large import.

Incentive ceiling: The annual incentive offered to every selected company is capped at INR 200 crores (approx. US$ 26.9 million).

Incentive period: Financial year 2023-2024 to financial year 2027-2028. The initial period may be deferred by upto 2 (two) years for specific product categories and in such case, the incentive period will be from financial year 2025-2026 to financial year 2029-30.

Eligibility: A company registered in India or a joint venture engaged in manufacturing of identified products and have minimum net worth of 30% of the committed investment on the date of the application are eligible under the scheme. The eligible companies availing benefits under this scheme can also avail benefits under other PLI Schemes for other than products identified under this scheme except for the fiscal benefits available under other PLI Schemes.

Further, in order to be eligible for claiming incentive, every selected applicant is required to meet the requirement of limiting investment for the product category, which is based on a fixed percentage of the committed investment or investment commensurate with plant/unit capacity, whichever is lower. In addition to this, every selected applicant should also meet the limiting incremental production rate on year to year basis, which is based on a fixed percentage of the committed annual incremental production rate or annual incremental production rate, as prescribed under the guidelines, whichever is lower.

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Footnotes

1. Press Release available at https://pib.gov.in/PressReleasePage.aspx?PRID=1710134.

2. Press Release available at https://www.pib.gov.in/PressReleasePage.aspx?PRID=1671912

3. Please refer https://www.meity.gov.in/writereaddata/files/production_linked_incentive_scheme.pdf. 

4. Please refer https://www.meity.gov.in/writereaddata/files/PLI_for_IT_Hardware_Notification_dated_03032020.pdf. 

5. Please refer https://www.investindia.gov.in/sector/pharmaceuticals. 

6. Please refer https://pharmaceuticals.gov.in/sites/default/files/Gazettee%20notification%20of%20bulk%20drug%20schemes_0_0.pdf.

7. Please refer https://pharmaceuticals.gov.in/sites/default/files/Gazette%20notification%20of%20Medical%20Device%20schemes_1.pdf. 

8. Please refer https://pharmaceuticals.gov.in/sites/default/files/Gazette%20Notification%20of%20PLI%20scheme%20for%20Pharmaceuticals_0_0.pdf. 

9. Please refer https://dot.gov.in/sites/default/files/2021_02_25%20PLI%20IP_0.pdf. 

10. Please refer https://mofpi.nic.in/sites/default/files/guidelines_plisfpiwithcoveringltr_0.pdf.  

11. Please refer https://www.investindia.gov.in/sector/food-processing. 

12. Please refer https://dpiit.gov.in/sites/default/files/PLIWG-Notification-16042021_10May2021.pdf. 

13. Please refer https://mnre.gov.in/img/documents/uploads/file_f-1619672166750.pdf.

14. Please refer https://steel.gov.in/sites/default/files/PLI%20scheme%20for%20Specialty%20steel-gazette%20notification.pdf. 

15. Please refer https://steel.gov.in/sites/default/files/Scheme%20Guidelines_Final_Upload.pdf.

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