Finance Minister Nirmala Sitharaman had announced an outlay of Rs 1.97 lakh crore for the Production-Linked Incentive (PLI) scheme for 13 identified sectors in her 2021-22 spending budget speech. The scheme, which aimed to increase domestic manufacturing below the government’s Atmanirbhar Bharat initiative, was introduced in March last year and is anticipated to outcome in a minimum production worth more than $500 billion in 5 years, according to Commerce Ministry. Till early April, the PLI scheme for nine sectors was authorized by the Cabinet.
What is the Production-Linked Incentive scheme and why it is required?
As the name suggests, the scheme gives incentives to businesses for enhancing their domestic manufacturing apart from focusing on lowering import bills and enhancing the price competitiveness of neighborhood goods. PLI scheme presents incentives on incremental sales for merchandise manufactured in India. The initial 3 PLI schemes have been authorized in March last year followed by 10 new schemes which have been notified in November of which six have been authorized later. The scheme for respective sectors has to be implemented by the concerned ministries and departments. According to a Cabinet statement in November last year, savings, if any, from one PLI scheme of an authorized sector can be utilised to fund the scheme for one more authorized sector.
“PLI will help MSMEs but in the second wave of the pandemic, we need to do more for MSMEs. They require help as they will be the engine of revival. There is also a secular realization that the economy is quite shallow and we need to deepen it. Once we do it, we will be able to expand units, get more industries, not just MSMEs, in the heartland of India,” Shashank Tripathi, Leader, Government Strategy, Transformation, and Aerospace and Defense, PwC India told TheSpuzz Online.
Which sectors are at present supported below the scheme?
The nine sectors for which the scheme has currently been authorized integrated electronic or technologies merchandise (Rs 5,000 crore outlay for 5 years), pharmaceuticals drugs (Rs 15,000 crore), telecom & networking merchandise (Rs 12,195 crore), meals Products (Rs 10,900 crore), higher-efficiency solar PV modules (Rs 4,500 crore), and so on. The other 4 sectors below PLI awaiting Cabinet approval have been automobiles & auto elements, advance chemistry cell (ACC) battery, textiles, and specialty steel. 16 applications worth Rs 35,541 crore by electronics and technologies item enterprises below the scheme have been authorized till early April vis-à-vis 14 applications involving Rs 873.93 crore by producers of health-related devices. Applications have to be submitted to the respective ministry or division on the internet which is followed by the disbursement method involving verification of the claim, approval of the disbursement, and final disbursement.
“The PLI scheme is the textbook example of successful government enablement of a laggard sector. PLI 1 was aimed at mobile handset assembly. In 2014, 50 million handsets were made in India representing 19 per cent of our national demand. In 2020, 260 million handsets were made in India representing 96 per cent of national demand. Not only has the PLI scheme helped the industry grow explosively, it has all but eliminated the import of mobile handsets,” Omer Basith, Co-founder & CEO, Virtual Forest told TheSpuzz Online. Virtual Forest aids lessen carbon emissions of home appliances by way of machine options.
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Who is eligible for the scheme?
Eligibility criteria for firms below the PLI scheme differ based on the sector authorized below the scheme. For instance, the eligibility for telecom units is topic to the achievement of 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 one hundred crores for other folks. Under meals processing, SMEs and other folks ought to hold more than 50 per cent of the stock of their subsidiaries, if any. The choice of SMEs is based on “their proposal, uniqueness of the product and the level of product development, etc.,” according to the Ministry of Food Processing Industries.
On the other hand, for firms below pharmaceuticals manufacturing, the project has to be a greenfield project when the net worth of the organization must not be much less than 30 per cent of the total committed investment. Moreover, the proposed Domestic Value Addition (DVA) of the organization must be at least 90 per cent in the case of fermentation-based item and at least 70 per cent in the case of chemical synthesis-based item.
What are the incentives involved?
An incentive of 4-6 per cent was supplied last year on mobile and electronic elements manufacturing such as resistors, transistors, diodes, and so on. Similarly, 10 per cent incentives have been supplied for six years (FY22-27) of the scheme for the meals processing market. SMEs in the 4 places such as prepared to cook or prepared to consume, processed fruits and vegetables, marine merchandise, and mozzarella cheese will also be supported for manufacture revolutionary and organic merchandise, according to the ministry. For white goods also, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of 5 years was supplied to businesses engaged in the manufacturing of air conditioners and LED lights.
During the initial 5 months of the scheme, the businesses in electronics manufacturing, which had applied for the scheme, created goods worth about Rs 35,000 crore and invested about Rs 1,300 crore below the scheme, the Commerce Ministry had mentioned citing the Quarterly Review Reports for the quarter ending December 2020. For businesses in white goods, the PLI Scheme is anticipated to see an incremental investment of Rs 7,920 crore more than 5 years along with incremental production worth Rs 1.68 lakh crore, exports worth Rs 64,400 crore, and direct and indirect revenues of Rs 49,300 crore.
“Supporting MSMEs is not merely a financial activity, it is an act wherein the person needs better supply chain, mentorship, etc. This is the point for us to think about ease of doing business 2.0 and take it to places where the PLI scheme is being instituted and not just in bigger cities,” added Tripathi.