By - Sindhuja Kashyap on July 22, 2023
India's manufacturing sector has experienced substantial growth in recent years, establishing the country as a prominent global manufacturing hub. To further bolster this growth and attract investments, the Indian government introduced the Production-Linked Incentive (PLI) scheme. This scheme offers a wide range of incentives and benefits to manufacturing companies, with the aim of enhancing domestic production and reducing import dependence in key sectors.
The PLI schemes cover a wide range of sectors including automobiles, auto components, drones and drone components, advanced chemical cell batteries, electronics and IT hardware, food processing, medical devices, specialty steel, pharmaceuticals, white goods, solar photovoltaic modules, telecom and networking products, textiles, and apparels.
The PLI scheme is a flagship initiative of the Indian government designed to promote manufacturing and generate employment. It encompasses sectors such as electronics, pharmaceuticals, automobiles, textiles, food processing, and more. These incentives are disbursed over a period of five years and are calculated as a percentage of the incremental sales of eligible products.
The government has allocated an outlay of Rs. 1.97 lakh crore for various important industries, aiming to develop national manufacturing champions and create employment opportunities. Furthermore, the government has taken steps to reduce compliance burdens on citizens and enterprises to facilitate ease of doing business. In the fiscal year 2022-23, approximately Rs. 2,900 Crore was disbursed as incentives under the PLI Schemes for eight sectors, including Large-Scale Electronics Manufacturing, IT Hardware, Bulk Drugs, Medical Devices, Pharmaceuticals, Telecom & Networking Products, Food Processing, and Drones & Drone Components.
To be eligible, telecom units must meet specific sector-based criteria, which include reaching a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods. The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crore for others. Under food processing, SMEs and others must hold over 50 percent of the stock of their subsidiaries, if any. In the case of pharmaceutical manufacturing businesses, the project must be a Greenfield project, and the company's net worth should be at least 30 percent of the total committed investment.
Additionally, for fermentation-based products, the proposed Domestic Value Addition (DVA) of the company should be at least 90 percent, while for chemical synthesis-based products, it should be at least 70 percent.
Companies can avail incentives ranging from 4% to 10% over a six-year period. To qualify for these incentives, businesses must fulfill several requirements, including increasing production, investing in new machinery and equipment, and achieving export goals.
The PLI scheme offers cash subsidies to eligible manufacturing companies, providing them with a direct financial benefit based on their incremental sales. These incentives are disbursed over a period of 5-7 years, subject to meeting the production targets and other eligibility criteria.
Participating companies experience enhanced profitability through income tax exemptions or reductions, effectively reducing their tax obligations. Under the scheme, eligible companies in the target segments will receive incentives ranging from 4% to 6% on incremental sales of goods manufactured in India, relative to a base year. This incentive will be applicable for a duration of five years following the base year. Additionally, eligible companies will receive incentives ranging from 5% to 3% on incremental sales of goods manufactured in India in the target segment for a period of four years, relative to the base year of 2019-20.
Manufacturers can avail capital subsidies to offset a portion of their investments in new plant and machinery, thereby reducing the cost of production.
The PLI scheme encourages manufacturers to increase their production capacities, leading to economies of scale and improved operational efficiency.
Companies are required to invest in advanced technologies to be eligible for incentives, driving innovation and technological progress.
The scheme emphasizes skill development initiatives, ensuring a qualified workforce and enhancing productivity.
By improving domestic production, the PLI scheme opens up opportunities for manufacturers to cater to the growing domestic demand, thereby expanding their market reach.
The scheme specifically targets sectors with export potential, aiming to boost India's exports and enhance competitiveness in the global market.
The PLI scheme offers sector-specific benefits tailored to the unique requirements of each industry. For example:
The scheme focuses on promoting electronics manufacturing, including mobile phones, semiconductor packaging, electronic components, and more, aiming to reduce import dependence and boost local manufacturing capabilities. The growth of India's Electronics System Design and Manufacturing (ESDM) sector has been greatly influenced by initiatives like Make in India, Digital India, and Startup India. Additionally, government endeavors like the Modified Special Incentive Scheme (M-SIPS), Electronics Manufacturing Clusters, Electronics Development Fund, and National Policy on Electronics 2019 (NPE 2019) have been highly successful.
The scheme encourages the production of key drugs, medical devices, and active pharmaceutical ingredients (APIs), fostering self-reliance in the healthcare sector.
The scheme supports the production of fabricated fibers, technical textiles, and apparel, driving value addition and increasing India's share in the global textile market.
Furthermore, the scheme aims to promote the use of technology in the food-processing sector. This includes the adoption of automation and digital technologies to improve efficiency and reduce costs. It also aims to enhance the competitiveness of Indian food products globally by encouraging companies to adopt international best practices and standards. This will improve the quality of Indian food products and increase their appeal to foreign buyers. In addition to financial incentives, the scheme provides support for branding and marketing select Indian food products abroad, facilitating their entry into international food markets and increasing their visibility.
The program is exploring the possibility of offering grants to applicant entities for establishing in-store branding, renting shelf space, and marketing. With its attractive financial incentives ranging from 4% to 10% over a span of six years, the scheme becomes highly appealing for businesses that invest in the industry and enhance their production capabilities.
India's PLI scheme presents an enticing opportunity for manufacturing companies aiming to expand their operations or establish a presence in the country. The scheme's incentives and benefits, including financial subsidies, tax exemptions, and market access, can significantly enhance the competitiveness of businesses. Moreover, the sector-specific focus ensures targeted growth in key industries, further strengthening India's position as a global manufacturing destination.
By investing in India under the PLI scheme, companies can tap into the vast domestic market, leverage the skilled workforce, and benefit from the government's support for technological upgradation. India's favorable business environment and lucrative incentives offer a promising investment landscape for manufacturing companies seeking long-term growth and profitability. The PLI scheme not only benefits businesses but also has a ripple effect on the economy. As companies invest in these sectors and increase production, it will lead to increased demand for goods and services, creating jobs and driving economic growth.