Production Linked Incentive Scheme Set to Boost Domestic Manufacturing

Electronics manufacturing in India has seen rapid growth over the past decade. Electrical and electronic equipment (E&EE) manufacturing is an important export segment for India, with computers and cell phones representing a significant portion of these shipments.

With a market share of USD 26 billion, the government has laid out strategic plans to increase its global share from the existing 16% to 25%. Let’s talk about the recent boost to Production Linked Incentive (PLI) schemes from the government of India and how it will impact domestic manufacturing industry.

PLI Scheme

The PLI scheme is an initiative that provides companies with cash incentives for enhancing domestic production, reducing import expenses, and enhancing the cost-effectiveness of domestic goods. The scheme offers incentives for rising sales of products produced in India. The incentives can increase up to 10 percent for certain products and they vary between 4-6 percent of turnover for the rest of the categories.

The ideal goal is to set up a strategy that would eliminate dependency on the government and create a self-reliant business ecosystem.

Terms of PLI Scheme for Manufacturers

The PLI scheme offers a significant boost to the Make in India campaign, which aims to increase the share of manufacturing in the country's GDP, by incentivizing manufacturers to focus on improving their operations and competitiveness. This will help the manufacturers increase their productivity, improve quality of their products, and also compete in the global market.

The schemes are designed with a correlation between upscaling of manufacturing capabilities and the incentives tied with it. The policymakers intend to provide value to SMEs as they are an integral part of the ecosystem that support large-scale manufacturers.

Currently, there is a large dependency on imports for finished goods as well as raw materials, the PLI scheme aims to shift the market gap and increase exports from India. It aims to boost employment generation by enabling domestic manufacturing of goods and place India closer to becoming self-sustaining in the years to come.

How Does the Scheme Work?

The electronic communication and devices sector accounts for 7% of the nation's GDP. Under the proposed scheme, if the devices, circuits, chipsets, etc., are manufactured locally, the company would receive a 1.25% incentive rate. And another 2.25% of power devices are also developed locally.

Incorporating domestic cabinet or chassis production would result in a total incentive rate of 5.75% for global companies by the conclusion of the fifth year.

The scheme offers financial incentives of 4% to 6% on the increase in sales (compared to the base year) of goods produced in India and falling under the specific target segments, to eligible companies, for a period of five years following the base year.

In the second round, incentives of 5% to 3% will be provided on the rise in sales (compared to the base year 2019-20) of goods made in India and falling under the target segment, to eligible companies, for four years.

The government has established a low threshold for the annual sales turnover for MSMEs and startups to be eligible for the scheme - INR 2 cr (for drones) and INR 50 lakhs (for drone components). This aims to increase the number of beneficiaries by allowing a larger number of MSMEs and startups to participate.

Impact of PLI Schemes on MSMEs

1: Supports the MSME Ecosystem

The PLI scheme can boost the overall manufacturing ecosystem and have a big impact on the MSMEs. The scheme will provide funding for affordable technologies and innovations that can help them compete globally. It also strengthens their partnerships with larger players and enhances their innovation capability.

2: Encourages Design-Based Manufacturing

Design-led manufacturing is yet another amended scheme that will receive an additional 1% incentive over pre-existing incentive rates. Curated as an objective to support the designing of telecom products in India. The scheme will now be open to both MSME and non-MSME companies globally and domestically.

The eligibility criterion for a design-based manufacturing scheme will be further subject to an increase in incremental sales of manufactured goods over the base year (FY19-20). This allocation has been enhanced from ₹1000 Crores to ₹2500 Crores.

Boosts OEM Manufacturing

OEMs are likely to benefit as companies they serve place more orders, invest in new technologies and have innovative approaches to product development that improves product quality. SMEs tend to have greater agility and flexibility when it comes to adopting new technologies. Additionally, they may be better equipped than larger companies when it comes to developing novel products or processes on their own.

What MSME Businesses Need to Know…

• The scheme should help the nation build manufacturing capacities in certain product ranges, be it mobile equipment, electronic devices chipsets, etc., which are currently imported.
• Companies need to be aware of different eligibility criteria for different products, and detailed threshold limits must be quantifiable in the fiscal year.
• Telecom units will only be available to firms that have made collective incremental investments and sold goods.
• Enterprises must hold clearance permits, licenses, and third-party approvals.
• The documents related to capital goods import must be validated.

The schemes have an inbuilt mechanism that monitors performance at each stage and ensures that standards are met, leading to swift transactions, and achieving incentives for fulfilling the laid-out commitments.

Conclusion: Setting-up Digital Strategies with the Right Technology Partner

While the PLI scheme is set up to help manufacturers boost domestic growth, it also helps drive modernization efforts in the manufacturing processes. At this point, the question every business must ponder and decide on would be to find and leverage the right set of digital enablement solutions and the right technology partner. This will allow businesses to strengthen digital infrastructure, drive growth, scale operations and maximize PLI benefits.

From product design & development, sales & marketing, customer engagement, supply chain integration to production management, finding the right technology partner who can integrate with existing processes without any hassle and drive business value will be key to future growth.