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Production Linked Incentives in Key Sectors – Part 1

  • IASbaba
  • September 18, 2021
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Spotlight Sep 16: Production Linked Incentives in Key Sectors: A Boost To Make In India – https://youtu.be/NzQ2DH_6vEU 

ECONOMY

  • GS-3: Indian Economy

Production Linked Incentives in Key Sectors – Part 1

Context: Production linked incentive (PLI) scheme aims at boosting domestic manufacturing and exports, is expected to –

  • Increase the country’s production by USD 520 billion in the next five years
  • Make India self-reliant in manufacturing goods for local and export markets, positioning it as a global manufacturing hub
  • Make domestic manufacturing competitive and efficient, build capacity, and benefit from economies of scale, enhance exports, attract investment and create jobs. 

Why is the production linked scheme needed?

According to experts, the idea of PLI is important as the government cannot continue making investments in these capital intensive sectors as they need longer times for start giving the returns. Instead, what it can do is to invite global companies with adequate capital to set up capacities in India. The kind of ramping up of manufacturing that we need requires across the board initiatives, but the government can’t spread itself too thin. Electronics and pharmaceuticals themselves are large sectors, so, at this point, if the government can focus on labour intensive sectors like garments and leather, it would be really helpful.

How will it incentivize manufacturing ops?

The production-linked incentive scheme gives eligible manufacturing companies a 4-6% incentive on incremental sales over the base year of 2019-20 for a five-year period. The PLI scheme will incentivize large domestic and global players to boost production, build a competitive ecosystem and lead to more inclusive growth.

A. For Pharmaceuticals: Part of the umbrella scheme for the Development of Pharmaceutical Industry, the objective is to enhance India’s manufacturing capabilities by increasing investment and production in the sector and contributing to product diversification to high value goods in the pharmaceutical sector.

  • Benefit domestic manufacturers
  • Is expected to contribute to the availability of wider range of affordable medicines for consumers
  • Promote the production of high value products in the country and increase the value addition in exports.  Total incremental sales of Rs.2,94,000 crore and total incremental exports of Rs.1,96,000 crore are estimated during six years from 2022-23 to 2027-28.
  • Generate employment for both skilled and un-skilled personnel, estimated at 20,000 direct and 80,000 indirect jobs as a result of growth in the sector.
  • Promote innovation for development of complex and high-tech products including products of emerging therapies and in-vitro Diagnostic Devices as also self-reliance in important drugs.  
  • Improve accessibility and affordability of medical products including orphan drugs to the Indian population.  The Scheme is also expected to bring in investment of Rs.15,000 crore in the pharmaceutical sector.

B. For IT Hardware: The scheme proposes production linked incentive to boost domestic manufacturing and attract large investments in the value chain of IT Hardware. 

  • The Scheme shall, extend an incentive of 4% to 2% / 1% on net incremental sales (over base year i.e. 2019-20) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of four (4) years.
  • Enhance the development of electronics ecosystem in the country. India will be well positioned as a global hub for Electronics System Design and Manufacturing (ESDM) on account of integration with global value chains, thereby becoming a destination for IT Hardware exports.
  • Has an employment generation potential of over 1,80,000 (direct and indirect) over 4 years.
  • Provide impetus to Domestic Value Addition for IT Hardware which is expected to rise to 20% – 25% by 2025

C. For Telecom Sector: To make India a global hub of manufacturing telecom equipment including core transmission equipment, 4G/5G Next Generation Radio Access Network and Wireless Equipment, Access & Customer Premises Equipment (CPE), Internet of Things (IoT) Access Devices, Other Wireless Equipment and Enterprise equipment like Switches, Routers etc.

  • To offset the huge import of telecom equipment worth more than Rs. 50 thousand crores and reinforce it with “Made in India” products both for domestic markets and exports.
  • Financial Year 2019-20 shall be treated as the Base Year for computation of cumulative incremental sales of manufactured goods net of taxes.
  • Addresses local manufacturing in MSME category because Government desires MSMEs to play an important role in the telecom sector and come out as national champions. 
  • Lead to incremental production of around ₹2.4 Lakh Crores with exports of around ₹2 Lakh Crores over 5 years. It is expected that scheme will bring investment of more than ₹3,000 crore and generate huge direct and indirect employment and taxes both.

D. For Large Scale Electronics Manufacturing

  • The scheme proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including electronic components and semiconductor packaging.
  • Under the scheme, electronics manufacturing companies will get an incentive of 4 to 6% on incremental sales (over base year) of goods manufactured in India for a period of next 5 years.
  • The scheme shall only be applicable for target segments – mobile phones and specified electronic components.
  • With the help of the scheme, domestic value addition for mobile phones is expected to rise to 35-40% by 2025 from 20-25%. 
  • Generate 8 lakh jobs more, both direct and indirect.

E. For Food Processing Industry’(PLISFPI): For implementation during 2021-22 to 2026-27 with an outlay of Rs. 10,900 crore.

  • Objective: To support creation of global food manufacturing champions commensurate with India’s natural resource endowment and support Indian brands of food products in the international markets.
  • Ministry of Food Processing Industries is inviting applications for availing sales based incentives and grants for undertaking Branding & Marketing activities abroad under the scheme from three categories of Applicants:
  • Category-I: Applicant under this category could undertake Branding & Marketing activities abroad also and apply for grant under the scheme with a common application.
  • Category-II: SMEs Applicants manufacturing innovative/ organic products who apply for PLI Incentive based on Sales.
  • Category-III: Applicants applying solely for grant for undertaking Branding & Marketing activities abroad

Note: Part 2 of the article will cover PIL for Specialty Steel, Textile Sector, Auto Sector, Drone Sector, Battery Storage, Solar PV cells and White Goods.

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