Production Linked Incentive PLI Scheme

Origin

• The Production Linked Incentive (PLI) Scheme was introduced by the Indian government in March 2020 as part of the “Atmanirbhar Bharat Abhiyaan” initiative, aiming to significantly boost domestic manufacturing and reduce reliance on imports by providing financial incentives to companies based on their incremental sales of manufactured goods in India; essentially incentivizing companies to invest in upgrading their manufacturing capabilities and expanding production capacity within the country. 

About

• Ministry:
• The Production Linked Incentive (PLI) Scheme is implemented by various ministries in the Government of India. These ministries include: 
  • Ministry of New and Renewable Energy: 
    • Implements the PLI Scheme for High Efficiency Solar PV Modules 
  • Ministry of Heavy Industries: 
    • Implements the PLI Scheme for Automobile and Auto Components 
  • Department of Telecommunications: 
    • Implements the PLI Scheme for Telecom and Networking Products 
  • Ministry of Food Processing Industries: 
    • Implements the PLI Scheme for Food Processing Industry 
• The Production Linked Incentive (PLI) Scheme is a government initiative in India aimed at boosting domestic manufacturing and reducing dependence on imports.
• It provides financial incentives to companies based on their incremental sales of products manufactured in India.

Budget Allocation

The total outlay for the PLI scheme across sectors is approximately ₹1.97 lakh crore (~$26 billion) over a five-year period.

Objectives of the PLI Scheme

• Enhance domestic manufacturing:
  • Encourage production in key sectors.
• Increase investments and job creation:
  • Attract global and domestic investments.
• Improve export competitiveness:
  • Strengthen India’s presence in global markets.
• Reduce import dependence:
  • Promote self-reliance in critical sectors.
• Encourage R&D and innovation:
  • Foster technological advancements.

Sectors Covered Under the PLI Scheme

• As of 2023, the Indian government has launched the scheme across 14 key sectors:
  • Automobile & Auto Components
  • Advanced Chemistry Cell (ACC) Battery
  • Electronic/Technology Products
  • Telecom & Networking Products
  • Pharmaceuticals
  • Medical Devices
  • Textiles & Apparel
  • Food Processing
  • White Goods (Air Conditioners & LEDs)
  • High-Efficiency Solar PV Modules
  • Specialty Steel
  • Drones & Drone Components
  • Semiconductors and Display Manufacturing
  • Technical Textiles

Incentive Structure

• Incentives are provided based on incremental sales (i.e., additional sales over a base year).
• The incentive rate typically ranges from 4% to 20% depending on the sector.
• The duration of the scheme varies from 5 to 7 years for different sectors.
• Companies need to meet minimum investment and production criteria to avail benefits.

Key Features of the Scheme

• Eligibility Criteria:
  • Companies must be registered in India.
  • Must meet minimum investment thresholds.
  • Should engage in manufacturing within India.
• Disbursement of Incentives:
  • Based on the verification of sales and investment data.
  • Companies submit quarterly and annual reports to claim incentives.
• Sector-Specific Provisions:
  • Electronics:
    • Focus on mobile phone manufacturing and semiconductor fabrication.
  • Automobile:
    • Support for electric and hydrogen fuel cell vehicles.
  • Pharmaceuticals:
    • Focus on bulk drug manufacturing and key starting materials (KSMs).
  • Solar:
    • Development of high-efficiency solar PV modules.
  • Food Processing:
    • Includes dairy, marine, fruits & vegetables, and ready-to-eat segments.

Benefits of the PLI Scheme

• Attracts both foreign direct investment (FDI) and domestic investments.
• Helps India become a global manufacturing hub.
• Generates large-scale employment opportunities.
• Strengthens India’s export potential.
• Promotes technology transfer and innovation.

Implementation and Progress

• Several companies have been approved under the scheme.
• Many sectors (like mobile manufacturing and pharmaceuticals) have witnessed significant growth in production and exports.
• The government continuously monitors progress and may introduce modifications based on industry feedback.

Challenges and Criticism

• Delayed disbursements due to complex verification processes.
• Stringent investment requirements may deter smaller firms.
• Global economic factors (such as supply chain disruptions) affecting implementation.
• Need for better infrastructure to support manufacturing expansion.

How to Apply for PLI Scheme

• Companies need to apply through the respective ministry or department overseeing the sector.
• The application process involves:
  • Filing an Expression of Interest (EOI).
  • Providing a detailed investment and production plan.
  • Fulfilling sector-specific eligibility criteria.
• Approved companies receive incentives over a specified period based on compliance with the scheme’s terms.

Conclusion

• The PLI scheme is a major initiative to position India as a global manufacturing hub. With increasing investments and policy support, it is expected to drive industrial growth, enhance export competitiveness, and create employment opportunities.

However, for sustained success, the government needs to address implementation challenges and ensure timely disbursal of incentives.