Powering the Indian Manufacturing Sector

15 Mar 2021

With the objectives of making Indian manufacturers globally competitive and making India an integral part of the global supply chain, the Government introduced the Production Linked Incentive (PLI) scheme to boost domestic manufacturing in India, in the three sectors of large-scale electronics manufacturing, medical devices, and pharmaceuticals to begin with.

The idea for this incentive plan is to partly account for some additional costs that Indian producers face due to gaps in infrastructure, power, and logistics. By targeting additional manufacturing capacity and turnover, it also encourages greater investment for addressing export markets with higher competitiveness. The scheme is set to be in force for 5 years, bringing manufacturing to US$ 520 billion in these sectors.

To establish India as a major hub of electronic manufacturing, the PLI scheme was launched for Mobile Phones and Specified Electronic Components amidst the Coronavirus pandemic and was notified on April 1, 2020. The scheme extends an incentive of 4% to 6% on incremental sales of goods under target segments that manufacture in India to eligible companies for five years (with the base year as FY 2019-20). 

16 companies were approved under the first round of the scheme by the Ministry of Electronics and Information and Technology (MeitY) for large-scale manufacturing of Mobile Phones and Specified Electronic Components. This gave a major impetus to the sectors and attracted interest from manufacturing companies, both at the global as well as the local level.

Despite the challenging times during the Covid-19 pandemic, the companies under the scheme, including top global mobile phone companies, produced goods worth approximately INR 35,000 crore (INR 350 billion) and invested around INR 1,300 crore (INR 13 billion).

Following the scheme’s resounding success in the mobile manufacturing and electronic sector and its ability in bringing in large inward investments, it was further extended to 10 more identified champion sectors with an outlay of INR 1,45,980 crore (INR 1459.8 billion. Sectors covered included Advance Chemistry Cell (ACC) battery, electronic/technology products, automobiles and auto components, and pharmaceutical drugs, among others.

Given the encouraging success of the scheme and keeping in line with the Prime Minister’s clarion call for an ‘Atmanirbhar Bharat’, PLI was recently announced for the Indian telecom sector, during February 2021, with an outlay of Rs. 12,195 crores (INR 121.95 billion) over five years, to make India a global manufacturer of telecom equipment. Apart from telecom equipment manufacturing, the scheme covers 4G/5G Next Generation Radio Access Network and wireless equipment, Internet of Things (IoT) access devices, other wireless equipment, and enterprise equipment such as switches and routers, etc.

The scheme proposes various financial incentives to eligible companies in the telecom and networking products sector and also aims to support the growth of the micro, small and medium enterprises (MSMEs) by encouraging the production of locally made products.

The implementation of the scheme is set to begin in April 2021 and is expected to bring in investments greater than INR 300 crore (INR 3 billion) and local production worth Rs. 2.4 trillion, of which exports alone account for Rs. 2 trillion. 

It is estimated that the scheme will create around 40,000 direct and indirect employment opportunities in the country and generate tax revenues to the tune of INR 17,000 crore (INR 170 billion), from telecom equipment manufacturing. Further, the scheme is expected to drive Intellectual Property (IP) and design-led manufacturing while also focussing on research and development to help Indian companies compete at the global level.

With many of the identified sectors being labour intensive, the umbrella scheme is expected to create significant gainful employment opportunities in the country, while also attracting global manufacturing companies to set up units and invest in India.

The scheme was also announced for IT hardware products including laptops, tablets, all-in-one personal computers, and servers with a total cost proposed estimated at around INR 7,350 crores (INR 73.5 billion). It is expected to further develop India’s electronics ecosystem while positioning India as a global destination for Electronics System Design and Manufacturing and a hub for global exports of IT hardware products.

For other identified sectors, details of the incentives are being studied and are expected to be announced shortly. Several related areas would also need to be taken up in conjunction with the incentive such as skilling for required personnel, ease of doing business, trade facilitation, and synching with global supply chains. Some sector-specific matters should also be addressed in consultation with the industry.

Given the changing global environment where the major global manufacturing companies of the world are looking to diversify their destinations and products, the PLI scheme will greatly enhance the competitiveness of India’s domestic manufacturing sector by encouraging local manufacturing and inviting overseas investments, while making India a global hub for manufacturing products.

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