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Focus On Higher Domestic Production: PLI Scheme – Government Contracts, Procurement & PPP



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Production Linked Incentive (also known as PLI) is a government
initiative launched in March of 2020, to encourage investment from
foreign and domestic companies and to create more employment. The
idea behind the scheme is relatively simple:

  1. To boost India’s manufacturing capabilities

  2. To decrease reliance on imports

  3. To enhance export-oriented production

As the name suggests, the PLI scheme works by providing
incentives which are directly linked to the
production/manufacturing capabilities of a company. The PLI scheme
can be implemented by the concerned ministries/departments and
shall be within the overall financial limits prescribed. The final
proposals of PLI for individual sectors will be appraised by the
Expenditure Finance Committee (EFC) and approved by the Cabinet.
Any new sector for PLI will require fresh approval of the
Cabinet.

The scheme was first introduced in following three key sectors
identified by the Government:

  1. Mobile manufacturing and electric components

  2. Medical device manufacturing

  3. Active Pharmaceutical Industry (API)

The duration of the scheme ranges from four to six years and
typically operates on the premise of providing incentive in form of
a) some percentage of cash incentive to manufacturing companies on
every additional production/ sale made over the base year, or b)
increase in basic customs duties. To avail these benefits, a
manufacturing entity has to establish its eligibility, which might
include certain investments being planned and type of investment
(whether greenfield or brownfield), etc. This gives manufacturing
companies a support for current investments and direct incentive to
boost capacities and manufacturing facilities further. The scheme
is genesis of Government’s view of enhancing domestic
production of goods to make the country ‘Aatmanirbhar’.
Another key component of the scheme, which was announced in
November 2021, is that savings generated from one sector can be
transferred to other sectors making efficient and complete use of
the budget assigned for the scheme.

Implementation of the sector-specific schemes is the
responsibility of the involved ministries and departments.
Initially, the scheme was notified in three key sectors; however,
as of now the scheme is active across 13 different sectors,
including ACC battery manufacturing, electronic / technology
products, automobile and auto components, pharmaceuticals, telecom
products, textiles, food processing, solar PV manufacturing, steel
products, medical devices, drug intermediates and APIs, white
goods, and mobile manufacturing.

For the purpose of seeking benefit under the scheme, an eligible
manufacturing entity has to make an application as per guidelines
issued along with the scheme. For the purpose of eligibility under
the scheme, typical requirement is investment and additional sale
of manufactured goods over the base year. However, this is a
general criteria and every sector has specific eligibility criteria
that a manufacturer needs to satisfy to receive the benefit. For
example, in case of mobile phone manufacturing, domestic companies
must have a consolidated global manufacturing revenue (including
group companies) of more than INR 100 crore in the base year of
2019-20.

The PLI scheme has garnered huge success in India. The World
Bank believes that PLI will assist the Indian economy to grow at a
rate of 8.7% in the FY 2022-23, outperforming the growth rate of
emerging rival economies like China. According to the Finance
Minister Nirmala Sitharaman, the scheme is set to generate 6
million new jobs in the next 5 years. Apart from this, the scheme
has been well received by manufacturing companies as Government has
received applications for PLI from hundreds of companies across
sectors. Through the virtue of this scheme the Indian Government
will push Indian manufactured products and brands to become a
global staple boosting the Indian GDP and forex reserves.

While the 13 Sectors that have received the benefit of this
scheme are performing well, the Government does not plan to stop
yet. According to the Minister of Chemical and Fertilizers, Mansukh
Mandaviya, the Ministry is planning to extend PLI scheme to the
chemical sector as well. Further, the Ministry seems to be
considering holding industrial consultations in order to see the
possibilities of PLI scheme and discuss the modalities around the
same. This could be really good news for the chemical industry in
India. As of now, India is a net importer of inorganic and organic
chemicals. If the scheme is extended to the chemical sector the
situation could very well change. Currently, China is the biggest
exporter of chemicals in the world, while USA is the largest
importer of the same. Given the tense trade relations between the
two countries, India can be an alternate source of supply for USA.
Chemicals is a fast-growing industry with global demand for
chemicals on the rise. Owing to the scheme, India could be poised
to take advantage of this increase in demand both locally and
internationally providing yet another boost to the forex reserves
of the Nation. Through this scheme, the Government is providing
unprecedented boost to manufacturing in key sectors. 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

Originally Published 02 April 2022

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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