The Production Linked Incentive Scheme (PLI) was announced by Finance Minister Nirmala Sitharaman in March 2020. The scheme was launched as a key initiative toward achieving the Atmanirbhar Bharat vision of the government. Initially, the PLI scheme details were announced for three critical sectors - pharmaceuticals, mobile manufacturing and medical devices manufacturing. Later, more sectors were included to broaden the scope of the scheme to include other important manufacturing domains.
The main objectives that the central government wants to achieve through this production linked incentive scheme are:
Manufacturing Capability: The PLI scheme has a budget of Rs 1.97 lakh crores to create a large manufacturing base in India. The objective of the scheme is to achieve a production of Rs 500 billion in the five-year time frame of this scheme. Additionally, the government is also facilitating the ease of doing business, easier compliance norms and the creation of infrastructure for easy logistics and export facilities at the district level.
Employment Generation: The manufacturing sector is one of the largest job creators in any economy. The government envisioned the creation of 60 lakh jobs in the manufacturing sector through the PLI scheme. Apart from this, the scheme is also expected to boost domestic employment and contribute to the technical skill development of India’s large and young population.
Import Export equation: India is a large net importer of raw materials and finished products. Robust domestic manufacturing will reduce the dependence on imports and boost overall exports and revenue.
The scheme is currently focused on 14 key sectors (listed below). These include sunrise industries, the core manufacturing sector as well as sectors where India aims to make a mark in the global value chain.
- Pharmaceutical Key Ingredients
- Pharmaceutical drugs
- Medical Devices
- Electronic/Tech Products
- Electronics Manufacturing
- Telecom & Networking Products
- Food Products
- White Goods
- Automobiles & Auto Components
- Textile Products
- Specialty Steel
- Drones and Drone Components
- Advance Chemistry Cell (ACC) Battery
- High-Efficiency Solar PV Modules
What are the benefits of the PLI Scheme?
Governments worldwide use PLI schemes to incentivize businesses financially through tax rebates, sops on duties and relaxed rules for acquiring land, etc. The end-user benefits immensely through these schemes by way of lower costs.
The PLI scheme offers financial incentives and benefits to manufacturers on incremental sales for five years.
Who is eligible to participate in the PLI scheme?
The eligibility criterion to participate in the PLI scheme varies from industry to industry, and it is sector-specific.
For MSMEs, the minimum incremental investment threshold is INR 10 crores. The threshold is INR 100 crores for non-MSMEs, and the maximum threshold limit is Rs 1000 crores to avail of the incentive benefit in the particular year of calculation. What this criterion means is that the company must meet the incremental investment in the particular year of calculation over the base year (2019-20). Some sectors have to meet incremental sales parameters as well in order to be eligible.
The manufacturing operations of the company can be anywhere in the country, either at one or multiple locations.
The incentive scheme considers any expense incurred on setting up a manufacturing unit, equipment, machines, expenditure on research and development and technology transfers in the specific sector.
How is the incentive calculated in the PLI scheme?
Under the PLI scheme, companies from specified sectors are eligible to receive a financial incentive of 4-6% calculated on incremental sales in a particular year over the base year (2019-20). The benefit is applicable for five years after the base year.
Any company that is registered in India and manufactures products from the list of 14 sectors specified in the PLI scheme can apply. There are specified threshold incremental investment targets that need to be met in order to be eligible.
How to apply for the PLI scheme?
The PLI Scheme details are available online. Applicants can apply to the PLI scheme online through the Project Management Agency (PMA) of PLI for assessment. Within 15 days, an acknowledgement of receipt of the application is issued.
Only one application per company is accepted under the Production Linked Incentive scheme. Every application goes through an assessment by the PMA of PLI, and a detailed checklist is prepared for scrutiny of the application upon receipt.
The PMA gives a report to the Technical Committee for the approval of the application.
The final recommendation report by the PMA and Technical committee is tabled before an Empowered Committee (EC) for approval.
All the applications are assessed within 60 days from the receipt of the application.
The final approval letter is sent within 5 days of final approval from the authorized office.
Which sectors have benefitted from the PLI scheme?
After 1st April 2021, the Pharmaceuticals sector saw 42 applications being approved with a combined investment value of USD 43 billion.
A total of INR 30 billion was invested in the mobile manufacturing and components sector.
The auto manufacturing sector’s budgetary outlay was INR 260 billion, with 75 companies having received approvals for the PLI scheme.
The government PLI scheme extends to MSMEs and provides a much-needed fillip to this sector. MSMEs are the growth engine of the economy. PLI benefits them indirectly as well. When large players in a sector grow, the demand flows downward to their suppliers also, e.g., auto ancillaries, which are MSMEs.
Conclusion
To summarise, the PLI scheme offers manufacturers and MSMEs an opportunity to receive financial incentives to expand their manufacturing capabilities and enable export orientation. The scheme has provided manufacturers with much-needed relief after two difficult pandemic years.
If you are an entrepreneur in the manufacturing sector, your financial needs can be addressed by private players and aided by government incentives. Tata Capital provides short-term business loans to SMEs, entrepreneurs and startups to fuel their growth. These loans meet the need for raw material finance, infrastructure investment, and manpower and technology enhancement to grow the business. A business owner can avail of flexible loans with easy processing and documentation. Check your eligibility for a business loan here. You can also calculate the EMIs you will incur on a business loan here.
25 July 2022
5 mins read
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