Production Linked Incentive Scheme: Boosting India’s global competitiveness

Production Linked Incentive Scheme: Boosting India’s global competitiveness

The Union Cabinet on 11 November 2020, in a move to give a major boost to domestic manufacturing and exports, extended the existing Production Linked Incentive (PLI) Scheme to 10 more identified champion sectors. This is expected to bolster competitiveness, attract foreign players and encourage domestic employment potential.

The PLI scheme will now cover the 10 new identified champion sectors of Advance Chemistry Cell (ACC) battery, electronic/technology products, automobiles and auto components, pharmaceutical drugs, telecom networking products, textile products, food products, high efficiency solar PV modules, white goods (ACs and LED) and specialty steel.

Sectors under PLI

Sectors Implementing Ministry/Department Approved financial outlay over a five-year period (Rs. Crore)
Advance Chemistry Cell(ACC) Battery NITI Aayog and Department of Heavy Industries 18,100
Electronic/Technology Products Ministry of Electronics and Information Technology 5,000
Automobiles and Auto Components Department of Heavy Industries 57,042
Pharmaceuticals Drugs Department of Pharmaceuticals 15,000
Telecom Networking Products Department of Telecom 12,195
Textile Products: MMF segment and Technical Textiles Ministry of Textiles 10,683
Food Products Ministry of Food Processing Industries 10,900
High Efficiency Solar PV Modules Ministry of New and Renewable Energy 4,500
White Goods (ACs and LED) Department for Promotion of Industry and Internal Trade 6,238
Specialty Steel Ministry of Steel 6,322
Total 1,45,980

Source: PIB Press Release

The scheme aims to improve core competencies and attract investments in cutting-edge technology to foster innovations across these sectors to make the manufacturers globally competitive.

On 12 November, while announcing a package of stimulus measures to boost the Indian economy inflicted by the global pandemic, the finance minister Smt. Nirmala Sitharaman elaborated on the decision to extend the PLI scheme. She stated that the current scheme has a total outlay of around Rs. 1.46 crores earmarked across these 10 sectors for the next five years.

India has significant untapped potential and adequate economic opportunities in each of these sectors. The sectors have been carefully selected keeping in mind the need for job creation in the country as well as the potential of these sectors to achieve significant global growth and attract domestic and international players.

Earlier, the PLI scheme was introduced to boost domestic manufacturing and attract foreign investments in the three sectors of large-scale electronics manufacturing, medical devices and pharmaceuticals.

The scheme was introduced for providing a major impetus to the Make in India campaign and the Prime Minister’s vision of a self-reliant India or ‘Atmanirbhar Bharat’ and aimed to reduce import dependence of the respective sectors.

The PLI scheme introduced by the Ministry of Electronics and Information Technology (MEITY) proposed financial incentives to boost competitiveness and invite greater investments in the electronics value chain, including electronic components and semiconductor packaging sectors.

The target products for the scheme were mobile phones and specified electronic components which were eligible for incentives of 4% to 6% on incremental sales (over base year of financial year 2019-20) of goods manufactured in India to eligible companies for a period of five years, subsequent to the base year.

To give a fillip to domestic manufacturing of the medical devices and Indian pharmaceutical sector and for attracting greater investments, the PLI scheme was also approved for sectors of bulk drugs and pharmaceuticals, given the sector’s immense potential to achieve significant growth and become a global manufacturer.

Accordingly, the Department of Pharmaceuticals came out with two PLI schemes – PLI scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSM), Drug Intermediates and Active Pharmaceutical Ingredients (API) and PLI scheme for promoting domestic manufacturing of medical devices. Both schemes were approved by the Cabinet during March 2020.

The schemes aimed at increasing India’s global share of India’s medical devices and pharmaceuticals market, while reducing India’s import dependence on medical devices and critical APIs.

The Government would extend an incentive of 5% on incremental sales of goods manufactured in India, covered under target segments to eligible companies for a period of five years.

The schemes and the guidelines were later on modified and revised keeping in view suggestions and comments from industry members to ensure effective participation of the industries.

Following the resounding success of the PLI scheme in these sectors, the scheme has now been extended to 10 more sectors with the objectives of boosting production, and making the manufacturers globally competitive, by creating economies of scale and improving efficiencies in these sectors. This, in turn, is expected to enhance India’s exports and make India an integral part of the global value chain.

Under the current scheme, various domestic as well as foreign companies will receive financial incentives for setting up manufacturing units and producing in India. The scheme will help in creating an enabling manufacturing ecosystem which will establish backward linkages and also help in promoting the growth of the micro, small and medium enterprises (MSMEs) sector in India. This, in turn, will bolster India’s growth and economic prospects along with significantly improving the country’s employment opportunities.

The successful implementation of the scheme, which will provide incentives and targeted strategies to promote the ten champion sectors, would contribute to make India a global destination for manufacturing in a post Covid-19 world.