By Bhavesh Thakkar
The Indian manufacturing sector has observed tremendous development in the previous couple of years owing to the “Make in India” initiative. Recognising the prospective added benefits of manufacturing, the government has taken various initiatives to encourage domestic manufacturing and support transform India into a worldwide manufacturing and exports hub. Initially, the government relied on measures like tariff adjustments for import substitution and de-linking of imports from some nations to obtain this target. However, a will need for initiatives that would straight effect the scale of domestic manufacturing was felt.
Simultaneously, the exports linked incentives on present hit a roadblock with the World Trade Organisation (WTO).
With this backdrop and to continue the momentum to incentivise nearby manufacturing, the concentrate has now shifted to sector-certain incentives schemes recognized as the Production Linked Incentive (PLI) scheme(s). These schemes are aimed at scaling up domestic manufacturing in important sectors even though also making certain compliance with WTO norms. Needless to say, the creation of such a manufacturing ecosystem will also lead to the generation of ample employment possibilities, therefore utilising the abundant resource pool that India presents. Thus, in November 2020, the Union Cabinet announced PLI schemes for 10 important sectors to enhance India’s manufacturing capabilities and boost the nation’s share of exports in the worldwide provide chain. In the announcement, the government has identified the sectors, eligible item lines and all round economic outlay for the next 5 years. This announcement came on the back of PLI schemes announced for 3 sectors (mobile phones, important pharmaceutical drugs and healthcare devices) earlier in 2020, which had been effectively received by the market.
Recently, the PLI scheme for the telecom sector was authorized by the Union Cabinet, with a budgetary outlay of ?12,195 crore. The scheme, effective from April 1, will provide economic help of 4-7% to telecom gear producers for a period of 5 years. Incentives will be offered on incremental sales of manufactured goods more than the base year, i.e., 2019-20, with a commitment towards minimum investment in the nation.
Presently, most of the nation’s demand for telecom gear is met via imports. Trai envisions net zero import of telecom gears by 2022. Aligned with this vision, the PLI scheme proposes to incentivise domestic manufacture of the following merchandise:
- Core transmission gear
- 4G/5G, next-gen RAN and wireless gear
- Access and buyer premises gear
- IoT access devices
- Other wireless gear & enterprise gear like switches, routers and so on.
With added benefits getting offered to these core merchandise, the scheme aims to offset the big import of telecom gear, at the moment exceeding Rs 50,000 crore. Companies qualifying below the scheme would be eligible for added benefits that could go up to 20-occasions the minimum investment threshold. The scheme has been framed following consultation with market stakeholders and appears to meet expectations with the minimum investment threshold kept at Rs one hundred crore for big players (vis-à-vis investment of Rs 10 crore for MSME). The government also acknowledges that the MSME sector would will need more assistance, and therefore an more incentive of 1% has been announced for such investors in the initial 3 years.
The scheme is anticipated to pave the way for incremental production of about `2.4 lakh crore, like exports of about Rs 2 lakh crore more than 5 years, apart from new investments exceeding Rs 3,000 crore.
The telecom sector is the backbone for “Digital India”. Thus, this scheme is a welcome move and will also help the ongoing concentrate towards digital transformation. Owing to this announcement, telecom gear producers are mulling enhancement of their manufacturing capacities. Global players also look to be evaluating the dynamics behind manufacturing in India.
Considering the promising added benefits below this scheme, coupled with decrease corporate tax prices for new manufacturing units, it is anticipated that India will quickly witness elevated manufacture of core telecom gear. The scheme will be implemented and monitored by the central government. At the very same time, investors will also be eligible for availing incentives granted by the State government(s) in addition to these presented below the PLI scheme.
The detailed scheme suggestions are in the pipeline and will elaborate on operational elements such as the application procedures, disbursements and so on. While these are awaited, investors really should extensively evaluate and pursue all incentives avenues to advantage from the holistic assistance intended by the government. Such finish-to-finish assistance from the policymakers may possibly support transform India into a preferred investment location.
The author is Tax companion – Indirect Tax Services, EY India.
Views are individual