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Production Linked Incentive (PLI) Scheme for IT Hardware

Context:

As part of its renewed PLI scheme for IT hardware, the Centre has received applications from 38 entities (Asus, Dell, HP, Foxconn, etc., excluding Apple), that want to manufacture laptops, personal computers and servers in India. The development comes weeks after the Centre imposed and then postponed a licensing requirement on the import of laptops and personal computers.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

  1. Production Linked Incentive (PLI) Scheme: Nurturing Self-Reliance
  2. PLI Scheme for IT Hardware: Boosting Domestic Production
  3. Boosting Local Production through the PLI Scheme in India

Production Linked Incentive (PLI) Scheme: Nurturing Self-Reliance

  • A Cornerstone for Self-Reliant India
  • Central to the government’s Atmanirbhar Bharat initiative.
Aims and Objectives:
  • Enhance global competitiveness of domestic manufacturing.
  • Foster global champions in manufacturing.
  • Create job opportunities for the nation’s youth.
Incentives for Manufacturing Excellence
  • Mechanism: Companies receive incentives based on incremental sales of products made in India compared to a base year.
Strategic Focus

Designed to:

  • Promote domestic manufacturing in sunrise and strategic sectors.
  • Mitigate reliance on cheaper imports and reduce import expenditures.
  • Enhance cost competitiveness of domestically produced goods.
  • Expand domestic capacity and boost exports.
Phases and Expansion
  • Commencement: First three PLI Schemes approved in March 2020.
  • Subsequent Growth: 10 new PLI Schemes introduced in November 2020.
  • Budget Commitment: Union Budget 2021-22 allocated INR 1.97 Lakh Crores for 13 key sectors under PLI Schemes.
Economic Impact

Anticipated Outcome: Expected minimum production of over US$ 500 billion in India within 5 years due to PLI Schemes.

PLI Scheme for IT Hardware: Boosting Domestic Production

Initial Announcement
  • First unveiled in February 2021.
  • Initial budget allocation: Approximately Rs 7,300 crore spread over four years.
Incentive Structure
  • Criteria: Domestic companies investing Rs 20 crore and achieving sales targets.
  • Sales Progression: Incentives granted based on sales growth – Rs 50 crore in the 1st year, Rs 100 crore in the 2nd, Rs 200 crore in the 3rd, and Rs 300 crore in the final year.
  • Incentive Range: 1-4% on incremental sales over 2019-20.
Challenges and Revisions
  • Initial Implementation: Only Dell and Bhagwati met the FY22 targets.
  • Industry Demand: Called for an enhanced scheme with a higher budget allocation.
Revised PLI Scheme
  • Approved by the Union Cabinet in May 2023.
  • Expanded Budget: Raised to Rs 17,000 crore, more than doubling the initial budget.
  • Attracting Global Manufacturers: Aims to draw major global IT hardware manufacturers to shift production to India, stimulating local manufacturing of laptops, servers, personal computers, etc.
Enhanced Incentives
  • Average Incentive: Over six years, averaging about 5%, compared to the earlier 2% over four years.
Economic Impact
  • Production Target: Aims to reach a production value of $24 billion in the IT hardware industry by 2025-26, with exports ranging from $12-17 billion.
  • Contribution to Digital Economy: A critical component in achieving the $1 trillion digital economy goal, including $300 billion from electronics manufacturing by 2025-26.

Boosting Local Production through the PLI Scheme in India

Economic Growth Focus
  • India has identified electronics manufacturing as a vital sector for future economic development.
Challenges in Electronics Imports
  • Recent Trends: Imports of electronic goods have surged in the past years.
  • Example: Import of electronic goods increased from $4.73 billion to $6.96 billion during April-June, with a 4-7% share in overall imports.
High Import Share in Personal Computers
  • Personal Computers: Especially laptops and palmtops have the highest import share.
  • Dominance of China: China contributes to approximately 70-80% of India’s imports in personal computers and laptops.
Incentives for Local Component Manufacturing
  • Local Component Production: Companies manufacturing components like memory modules and display panels locally will receive extra incentives under the revised scheme.
Performance-Based Incentives
  • Productivity Push: The PLI scheme aims to motivate companies to meet production targets by offering incentives.
  • Penalty for Lagging: Up to 10% deductions from subsidies if production falls below set thresholds.
Integration with Semiconductor Scheme
  • Synergy: The PLI scheme will align with the government’s semiconductor scheme.
  • Domestic Chips: Encourages the use of chips made in India by laptop manufacturers, enhancing the domestic semiconductor industry’s growth.

-Source: The Hindu


June 2024
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