What is the PLI Scheme? Why was it introduced?

Production-Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on incremental sales (over FY 2019-20) from products manufactured in domestic units. The scheme invites foreign companies to set up units in India, however, it also aims to encourage local companies to set up or expand existing manufacturing units and also to generate more employment and cut down the country's reliance on imports from other countries.

Background of PLI Scheme

As a part of the National Policy on Electronics, on April 1, 2020, the IT Ministry had notified a scheme which would give incentives of 4-6% to electronics companies which manufacture mobile phones and other electronic components such as transistors, diodes, thyristors, resistors, capacitors and nano-electronic components such as micro electromechanical systems. According to the scheme, companies that make mobile phones which sell for INR 15,000 or more will receive an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India.

The scheme, according to officials, will on one hand attract foreign investment in the sector, while also encouraging domestic mobile phone makers to expand their units and presence in India. Previously, the PLI Scheme was for select sectors such as mobile phones and allied equipment manufacturing, pharmaceutical ingredients and medical devices.

In March 2020, the Indian Government made 53 bulk drugs eligible for PLI worth INR 6,940 crore (~USD 925 million). The scheme is expected to benefit up to 150 manufacturing units, generating incremental sales of INR 46,400 crore (~USD 6187 million) and significant additional employment over the next 8 years.

Purpose of the PLI Scheme announced in March 2020

The purpose of widening the PLI Scheme to cover more products was:

  1. To protect identified product areas
  2. To introduce non-tariff measures that make imports more expensive.
  3. To acknowledge the relevance of exports in overall growth strategy but focus more on the domestic market
  4. To promote manufacturing at home by offering production incentives and encourage investments both from within and outside.

What sectors are covered now under the PLI Scheme?

In addition to the above sectors the scheme has expanded to ten other sectors namely food processing, telecom, electronics, textiles, specialty steel, automobiles and auto components, solar photo-voltaic modules and white goods such as air conditioners and LEDs.

Eligibility criteria of the PLI scheme

Companies that are registered in India and are involved in the manufacturing of goods covered under the target segments of the scheme can apply under the PLI Scheme. Eligibility under the Scheme shall be subject to thresholds of Incremental Investment (covered under Target Segments) over the base year as defined.

An applicant must meet threshold criteria (i.e. incremental investment) that is a minimum of INR 10 crore (MSME) or INR 100 crore (Others) and a maximum of INR 1000 crore) to be eligible for disbursement of incentive for the year under consideration. To meet the threshold criteria of Incremental Investment for any year, the cumulative value of investment done till such year (including the year under consideration) over the Base Year (2019-20) shall be considered. Some sectors also have threshold criteria for incremental sales.

The applicant can operate existing or new manufacturing unit at one or more locations in the country.

Any additional expenditure incurred by companies on plant, machinery, equipment, research and development and transfer of technology for manufacture in the target segments will be eligible for the incentive scheme.

Basis of calculation of incentive under the PLI Scheme

The scheme shall extend an incentive of 4% to 6% on incremental sales (over base year i.e. 2019-20) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five years subsequent to the base year.

How to apply for benefits under the PLI Scheme

The application process is set out below:

  1. Application can be made by any company registered in India.
  2. The number of applications allowed per applicant for support under the Scheme shall be restricted to one.
  3. Project Management Agency (PMA) / MeitY to receive the application (through an Online Portal) for prima facie examination and issue acknowledgement within 15 days post completion of examination.
  4. Each application shall be reviewed and details shall be entered in the detailed checklist by the PMA upon receipt of the application.
  5. The PMA will accordingly make appropriate recommendations to the Technical Committee (TC) for approvals under the Scheme.
  6. The final recommendations of the PMA and the Technical Committee shall be placed before Empowered Committee (EC) for its approval.
  7. All the applications shall be finalized within 60 days from the date of issuance of acknowledgement of receipt of the application.
  8. An approval letter to applicant will be sent within 5 working days of receiving approval from the Competent Authority.

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