The Union cabinet on Wednesday approved a proposal to offer as much as ₹1.45 trillion in incentives to persuade global companies in 10 sectors, including automobiles, drugs and textiles, to establish factories in India as they seek to diversify their supply chains amid tension between the United States and China.
Expanding the production-linked incentive (PLI) scheme, which has already been in place for the production of electronics since April, to additional sectors will also help create jobs, Union Minister Prakash Javadekar told reporters. “This will benefit all sectors of society,” Javadekar said. PLI Scheme Now Offers Manufacturers Worthwhile Benefits ₹1.97 trillion, including that for the production of electronic products.
Finance Minister Nirmala Sitharaman, who was present at the press conference, said the decision was aimed at providing the necessary support to “critical and emerging sectors” with the idea of making India a part of the supply chain. global. There is no limit to the number of companies that can apply to take advantage of the benefits offered under the scheme, Sitharaman said.
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The manufacturing sector currently contributes 16% to India’s GDP, Javadekar said, adding that the idea was to increase it. Among the 10 industries, auto and auto component companies will receive the highest incentive from ₹57,000 crore, Javadekar said. Advanced cell chemistry battery products, pharmaceuticals, telecommunications and networks, food products, specialty steel, high-efficiency solar modules, and home appliances are among the other sectors included.
The scheme seeks to attract more investment to sectors that offer enormous potential such as batteries for consumer electronics, electric vehicles and clean energy projects. The inclusion of the food industry will have a cascading impact on the agricultural and related sectors, said Anand Ramanathan, partner at consultancy Deloitte India.
The move is likely to attract investment from foreign manufacturers and comes at a time when automakers plan to relocate a portion of their supply chain network outside of China to avoid disruptions in operations.
The government has been urging automakers to cut component imports, especially from China, and boost exports.
“We are hopeful that the announced outlay will encourage the industry to become a net exporter and help reduce dependence on imports,” said Deepak Jain, president of the Automotive Component Manufacturers Association. Jain said the automotive components industry exports a quarter of its production and will help the sector increase its share of world trade.
Kenichi Ayukawa, president of the Society of Indian Automobile Manufacturers, said the industry was eagerly awaiting the plan to increase its competitiveness and take growth to the next level.
The PLI scheme offers a 4-6% incentive to eligible companies on incremental sales (during the base year) of manufactured products over five years. This has attracted the interest of nearly two dozen companies, including Foxconn Hon Hai Technology India Mega Development Pvt. Ltd and Samsung India Electronics Pvt. Ltd, to establish production facilities here.
To boost investment, the government last year slashed the corporate tax rate for new manufacturers and for companies that do not benefit from any tax breaks, but a drop in demand resulted in a tepid response. The government wants to boost manufacturing and, at the same time, pursues a ₹100 trillion investments in infrastructure over the next several years to lift the economy out of its current recession. Production incentives can help global manufacturing companies explore a China plus one strategy. Also, large production units will mean more business for small and medium-sized enterprises, the backbone of India’s manufacturing and export sectors.
The decision will give a big boost to the manufacturing sector, said Chandrajit Banerjee, director general of the Confederation of Indian Industries.
Malyaban Ghosh contributed to the story.
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