Production-linked incentive (PLI) is an initiative that the government launched in 2020 to encourage investment from foreign and domestic companies, and boost manufacturing and employment. More precisely, the objective of the scheme is to:
- boost India's manufacturing capabilities;
- decrease import reliance; and
- enhance export-oriented production.
As the name suggests, the PLI scheme works by providing incentives that are directly linked to the production or manufacturing capabilities of a company set up in India. The PLI scheme is:
- implemented by the concerned ministries or departments under which a specific sector or product falls; and
- within the overall financial limits prescribed or the budget assigned.
The scheme has been introduced in 13 sectors and includes:
- Automotive Cells Company battery manufacturing;
- electronic or technology products;
- telecom products;
- mobile manufacturing;
- automobile and auto components;
- food processing;
- solar photovoltaics (PV) manufacturing;
- steel products;
- medical devices;
- drug intermediates and active pharma ingredients (APIs); and
- white goods.
Further, savings generated from one sector can be transferred to another sector, thus making efficient and complete use of the budget assigned for the scheme.
The products that the government has identified under the 13 sectors are the following:
- auto components;
- drones and drone components;
- advance chemical cell batteries;
- mobile phones, electronic components, laptops, tablets, all-in-one computers and servers;
- ready-to-eat and ready-to-cook food;
- marine products;
- vegetables; and
- mozzarella cheese;
- medical devices;
- coated or plated steel products;
- electrical steel;
- alloy steel products and steel wires;
- specialty rails; and
- high-strength or wear-resistant steel;
- drugs and medical devices:
- complex generic drugs;
- patented drugs or drugs nearing patent expiry;
- cell-based or gene-therapy products;
- orphan drugs;
- special empty capsules;
- complex excipients;
- key starting materials;
- drug intermediaries;
- repurposed drugs;
- auto-immune drugs;
- anti-cancer drugs;
- anti-diabetic drugs;
- anti-infective drugs;
- cardiovascular drugs;
- psychotropic drugs;
- anti-retroviral drugs;
- in vitro diagnostic devices; and
- other drugs not manufactured in India;
- solar PVs;
- electronics and wireless equipment:
- core transmission equipment;
- 4G and 5G;
- next-generation radio access network and wireless equipment;
- access and customer premises equipment;
- Internet of Things access devices and other wireless equipment;
- enterprise equipment; and
- switches and routers;
- man-made fibre and technical textile; and
- miscellaneous materials and equipment:
- air conditioners components;
- high-value intermediates (copper tubes, aluminium foil and compressors);
- low-value intermediates (printed circuit board assembly for controllers, brushless direct current electric motors, service valves and cross flow fans for air conditioning and other components);
- LED lighting products, LED chips, LED drivers and LED engines;
- modules; and
- wire wound inductors.
The duration of the scheme ranges from four to six years and typically operates on the premise of providing incentives in the form of:
- some percentage of cash incentive to manufacturing companies on every additional production or sale made over the base year; or
- an increase in basic customs duties.
In order to make use of these benefits, an Indian manufacturing entity must establish its eligibility, which might include certain investments being planned and the type of investment (whether greenfield or brownfield).
The scheme gives manufacturing companies support for current investments and direct incentive to boost capacities and manufacturing facilities further in order to decrease India's import reliance and encourage the industry to become self-reliant. In situations where the industry is already self-reliant, the objective is to become more export oriented. The scheme is a genesis of the government's view of enhancing domestic production of goods to make the country "atmanirbhar" (self-reliant) in the true sense of the word.
An eligible Indian manufacturing entity has to make an application as per the guidelines issued along with the scheme in order to obtain the benefit. Eligibility under the scheme is typically given following an investment and additional sale of manufactured goods over the base year. However, this is a general criterion, and every sector has specific eligibility criteria that a manufacturer needs to satisfy to receive the benefit. Based on the applications received by government, eligible companies are approved for the PLI scheme as per the criterion and available budget.
The PLI scheme has garnered huge success in India, owing to a plethora of reasons. The world bank believes that the PLI scheme will assist the Indian economy to grow at a rate of 8.7% in the financial year 2022-23, outperforming the growth rate of emerging rival economies such as China. The scheme is expected to generate 6 million new jobs in the next five years. In addition, the scheme has been well received by manufacturing companies, as government has received applications for PLI from hundreds of companies across sectors.
While the 13 sectors that have received the benefit of this scheme are finding the scheme highly encouraging and supportive, the government does not plan to stop and is trying (potentially with success) to introduce the scheme in other sectors.
Through this scheme, the government is providing an unprecedented boost to its manufacturing in key sectors and is encouraging investment in India. The predicted outcome so far is going in the right direction, and the response from all the stakeholders involved is encouraging. India could very well be headed towards boosting its manufacturing capacities significantly to become a global manufacturing hub. The long-term impact of the scheme remains to be seen; however, the matter is progressing, and government is looking forward to the increase in fresh investments and enhancement in existing capacities by the Indian industry and foreign investors in the Indian industry.
For further information on this topic please contact Nihit Gupta at TPM Solicitors & Consultants by telephone (+91 11 4989 2200) or email ([email protected]). The TPM Solicitors & Consultants' website can be accessed at www.tpm.in.