PRODUCTION LINKED INCENTIVE SCHEME – MAJOR BOOST TO LOCAL MANUFACTURING

Considering the National Industrial Classification, there are 24 sub-categories in the Indian manufacturing sector. These categories comprise motor vehicles, beverages, textiles, chemicals, food products, electrical equipment, computer, furniture, and electronic products, among others. It is expected that India’s manufacturing sector is anticipated to show strong growth over the past few years. Moreover, the sector’s Gross Value Added (GVA) at current prices was estimated at US$ 397.14 billion in FY2020 with 0.3% Y-o-Y growth.

In November 2020, the Indian government publicized the “Production Linked Incentive Scheme”, worth Rs. 145,980 crores (US$ 19.7 billion) incentives to attract companies to established manufacturing plants in the local market. The production linked incentive will be accessible to 10 sectors: automobile and automobile components, telecom, textiles, drug manufacturing, food, white goods like air conditioners and LEDs, advanced chemistry cell batteries, specialty steel, electronics, and solar photovoltaic modules, and textile. Under the scheme, cash subsidies will be offered to companies as a percentage of incremental sales from the base year (the year when the scheme comes into effect). The incentive rate will depend on each sector’s ‘disadvantage’ in domestic manufacturing and vary from sector to sector.

The Union Cabinet, led by the honorable Prime Minister, Shri Narendra Modi, has revealed the Production Linked Incentive (PLI) Scheme in the following ten critical sectors for Enhancing India’s Manufacturing Capabilities and Enhancing Exports under the tagline of “Atmanirbhar Bharat.”

Expecting Results from Production Linked Incentive Scheme

The production linked incentive scheme was aimed to increase India’s global share in the medical devices and pharmaceuticals industry while reducing high import dependency on critical APIs and medical devices. 

The Indian Government would expect to extend an incentive of 5% on incremental goods sales produced in India and covered under target segments to eligible companies for five years. The scheme and the guidelines were later revised and modified, keeping in suggestions and comments from industry experts to ensure the industries’ effective participation.

Ensuring the scheme’s resounding success in these sectors, the scheme has now been extended to 10 more sectors to boost production and make the manufacturers globally competitive by creating economies of scale and improving these sectors’ efficiencies. This is expected to fuel India’s exports and make India an integral part of the global value chain.

Under the current scheme, various domestic and foreign companies will receive financial incentives to set up manufacturing units and produce in India. The scheme will help create an enabling manufacturing ecosystem that will establish backward linkages and promote the micro, small and medium enterprises (MSMEs) sector. This, in turn, will boost India’s growth and economic prospects and significantly improve the country’s employment opportunities.

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