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Production Linked Incentives in Manufacturing Sector



Backdrop

Under Atmanirbhar Bharat Initiative, intending to boost internal manufacturing, exports, and cutting down the import bills, the government launched a scheme in March 2020 wherein the government decided to incentivize the companies who reported incremental sales from goods manufactured in domestic units.

These government incentives were called ‘Production Linked Incentives”.

 

Why in News

The Government, in November 2020, decided to extend the ‘Production Linked Incentives’ Scheme to ten key sectors including textiles, automobile manufacturing, food processing, etc.


 

Production Linked Incentives Scheme (PLI Scheme)


  • The concept of PLI can be easily understood by a simple example that if a production team within a manufacturing company completes its targets well within time, the company pays incentives to the whole team along with their regular salaries so that the team gets motivated and pushes itself even to work even harder.

  • On similar lines, the Government has decided to incentivize the companies that report a rise in the sale of domestically manufactured products.

  • By giving away the incentives, the companies will compete with each other to become beneficiaries of the scheme, and hence domestic manufacturing will increase manifold.

  • As a part of this scheme, the Central Government shall give an incentive of 4% to 6% on incremental sales of goods manufactured in India, covered under target segments, to eligible companies, for a period of 5 years with the financial year 2019-20 considered as base year based on which the incentives will be calculated.

  • Another advantage of this scheme is that the government will also be able to attract foreign players to set up their business units in India.

  • The scheme will be implemented by concerned ministries/departments and the final proposals will be appraised by Expenditure Finance Committee (EFC).

 

Why is PLI significant for Manufacturing Sector?

As the government needs a wide array of resources to invest in capital-intensive sectors, they can’t continue doing that as these sectors take a long time to give back returns. Instead, Government can incentivize the production units based on domestic lands and attract global companies with adequate capital to set up their manufacturing units in India.

 


Significance of Newly added Sectors


  • The government launched the PLI scheme in March 2020 particularly for three sectors namely Mobile Phone Manufacturers, Pharma Ingredient Makers, and Medical Devices’ manufacturers.

  • Now, the government has decided to add several other sectors namely Advance Chemistry Cell (ACC) Battery, Electronic/Technology Products, Automobiles & Auto Components, Pharmaceutical drugs, Telecom & Networking Products, Textile Products: MMF segment and technical textiles, Food Products, High-Efficiency Solar PV Modules, White Goods (ACs & LED) and Specialty Steel.

While announcing the addition of new sectors to the scheme, the government also explained how this step will impact the domestic manufacturing scene.


ACC battery Manufacturing

  • Implementing Authority: NITI Aayog and Department of Heavy Industries

  • It has been regarded as one of the largest economic opportunities of the twenty-first century for several global growth sectors, such as consumer electronics, electric vehicles, and renewable energy.

  • The PLI scheme for ACC battery will incentivize large domestic and international players in establishing a competitive ACC battery set-up in the country.

Electronic/Technology Products

  • Implementing Authority: Ministry of Electronics and Information Technology

  • India is expected to have a USD 1 trillion digital economy by 2025. Additionally, the Government's push for data localization, Internet of Things market in India, projects such as Smart City and Digital India are expected to increase the demand for electronic products.

  • The PLI scheme will boost the production of electronic products in India.

Automobiles and Auto Components Manufacturing Sector

  • Implementing Authority: Department of Heavy Industries

  • The automotive industry is a major economic contributor in India.

  • The PLI scheme will make the Indian automotive Industry more competitive and will enhance the globalization of the Indian automotive sector.

Pharmaceutical Drug Manufacturing

  • Implementing Authority: Department of Pharmaceuticals.

  • The Indian pharmaceutical industry is the third-largest in the world by volume and 14th largest in terms of value.

  • It contributes 3.5% of the total drugs and medicines exported globally. India possesses a complete ecosystem for the development and manufacturing of pharmaceuticals and a robust ecosystem of allied industries. The PLI scheme will incentivize the global and domestic players to engage in high-value production.

Telecom and Networking Products Manufacturing

  • Implementing Authority: Department of Telecom

  • Telecom equipment forms a critical and strategic element of building a secured telecom and India aspires to become a major original equipment manufacturer of telecom and networking products.

  • The PLI scheme is expected to attract large investments from global players and help domestic companies seize the emerging opportunities and become big players in the export market.

Textile Products: Man-Made Fibers Segment and Technical Textiles

  • Implementing Authority: Ministry of Textiles

  • The Indian textile industry is one of the largest in the world and has a share of ~5% of global exports in textiles and apparel. But India's share in the manmade fiber (MMF) segment is low in contrast to the global consumption pattern, which is majorly in this segment.

  • The PLI scheme will attract large investment in the sector to further boost domestic manufacturing, especially in the MMF segment and technical textiles.

Food Products

  • Implementing Authority: Ministry of Food Processing Industries

  • The growth of the processed food industry leads to a better price for farmers and reduces high levels of wastage.

  • Specific product lines having high growth potential and capabilities to generate medium- to large-scale employment have been identified for providing support through the PLI scheme.


High-Efficiency Solar PV Modules

  • Implementing Authority: Ministry of New and Renewable Energy

  • Large imports of solar PV panels pose risks in supply-chain resilience and have strategic security challenges considering the electronic (hackable) nature of the value chain.

  • A focused PLI scheme for solar PV modules will incentivize domestic and global players to build large-scale solar PV capacity in India and help India leapfrog in capturing the global value chains for solar PV manufacturing.


White goods (air conditioners and LEDs)

  • Implementing Authority: Department for Promotion of Industry and Internal Trade

  • They have a very high potential of domestic value addition and making these products globally competitive.

  • A PLI scheme for the sector will lead to more domestic manufacturing, the generation of jobs, and increased exports.

Specialty Steel

  • Implementing Authority: Ministry of Steel

  • Steel is a strategically important industry and India is the world's second-largest steel producer in the world. It is a net exporter of finished steel and has the potential to become a champion in certain grades of steel.

  • A PLI scheme in Specialty Steel will help in enhancing manufacturing capabilities for value-added steel leading to an increase in total exports. (Source: PIB)