Policy change: big incentives for big companies, mainly to boost exports

Signifying a new policy paradigm where global players are unapologetically celebrated and promoted through incentives, the Cabinet on Wednesday approved a production-linked incentive (PLI) scheme for 10 high-potential sectors, including automotive, batteries, the pharmaceutical industry and telecommunications networks, food and textiles.

The plan, which is estimated to cost Rs 1.46 lakh crore over a five-year period, will set high standards for companies to take advantage of incentives, such as demanding production standards and incremental annual exports.

It also marks a renewed focus on Make in India and moves away from a long-standing MSME bias; While local manufacturing is the ostensible goal, there will be an implicit impetus for large-scale exports.

Along with the Rs 51,311 crore allocated for three PLI schemes (in electronics / mobile phones, active pharmaceutical ingredients and medical devices) announced after the Covid-19 outbreak, the cost to the treasury will be close to Rs 2 lakh crore over five years .

Briefing reporters after a cabinet meeting, Finance Minister Nirmala Sitharaman said the schemes will make manufacturers globally competitive, attract investment in key sectors, increase exports, promote self-sufficiency and boost employment. The move will also create economies of scale and make India an integral part of the global supply chain.

The move will also create economies of scale and make India an integral part of the global supply chain.

The decisions will also help improve the share of the manufacturing industry, which has been languishing at 16-17% of GDP for about three decades, to the expected level of 25%.

Prime Minister Narendra Modi tweeted: “Cabinet decision on the PLI scheme for 10 sectors will boost manufacturing, provide opportunities for young people and make India a preferred investment destination. This is an important step to improve our competitiveness and achieve Aatmanirbhar Bharat. “

While the details of the new scheme for each sector will be finalized soon, they are expected to be adapted to exports as well, without contravening the WTO rules that generally prohibit export subsidies. For example, in the case of the PLI plan already announced for mobile phones, the incentive of 40 billion rupees for five years will be granted only for phones whose factory price is 200 dollars or more.

On October 6, 16 proposals involving an investment of Rs 11 billion were approved under the PLI scheme for mobile phones; Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron were the beneficiaries. Of the total output of Rs 10.5 million lakh to be provided over five years, it is estimated that around 60% is exported.

Industry captains praised the latest move. Adi Godrej, President of Godrej Group, said: “Incorporating food processing into the PLI scheme would revolutionize the industry. While India is the world’s leading producer of fruits, vegetables and milk, the percentage of processing is well below the world average. We process only 7% of the total agricultural production. The scheme would help attract more investment. “

Tata Steel Managing Director TV Narendran, who is also the IIC Chairman-designate, said: “The strong performance of the steel industry has a multiplier effect on other industries as well … this scheme will prove to be a game changer.” .

IIC President Uday Kotak called the decision “forward-thinking and progressive.” “It identifies the right sectors and products in core industries, labor-intensive manufacturing and export-oriented sectors, as well as high-tech products,” Kotak said.

Baba Kalyani, Chairman of Bharat Forge, said: “The inclusion of high-demand high-tech items such as semiconductor factories, IoT devices and ACC batteries in the recently announced PLI scheme will greatly boost Indian manufacturing …” .

Sharad Kumar Saraf, President of Exporters Body FIEO, said: “By helping the manufacturing sector to ensure economies of scale with modern and high-end technology, the scheme will boost investment, attract FDI, expand national capacity and improve exports in a big road. “

As part of the decision, the government will allocate, for five years, as much as Rs 57,042 crore for auto and automobile components, Rs 18,100 crore for advanced chemistry cell batteries, Rs 15,000 crore for pharmaceuticals, Rs 12,195 crore for Telecommunication networks products, Rs 10,900 crore for food products, Rs 10,683 crore for technical textiles, Rs 6,322 crore for special steels, Rs 6,238 crore for household appliances such as Acs, Rs 5,000 crore for electronic products and Rs 4,500 crore for photovoltaic solar modules.

The PLI plan will be implemented by the concerned ministries / departments and will be within prescribed general financial limits. Final PLI proposals for individual sectors will be evaluated by the Expenditure Financing Committee (EFC) and approved by Cabinet, and are expected to be finalized within a month.

“Savings, if any, from a PLI scheme from one approved sector can be used to finance another sector approved by the group of qualified secretaries. Any new sector for PLI will require a new approval from the Cabinet ”, according to an official statement.

As FE had previously reported, NITI Aayog had favored the launch of PLI in these 10 sectors. Funds for PLI schemes, which must be operational for a maximum of 5 years, can be increased by 10% per year, he had suggested.

NITI Aayog CEO Amitabh Kant said: “Promoting the manufacturing sector and creating an enabling manufacturing ecosystem will not only enable integration with global supply chains, but will also establish backward linkages with the manufacturing sector. MSMEs “.

“We welcome the initiative to extend the PLI scheme to specialty steel products. This will allow the steel industry to attract new investment and cutting edge technology that will make India self-sufficient in the production of value-added specialty steel products, ”said Seshagiri Rao, Group Chief Executive Officer and Chief Financial Officer, JSW Steel.