Production Linked Incentive (PLI) Schemes in India
In the PLI scheme, incentives are offered to manufacturers of Indian products when incremental sales are made. Six new schemes were approved after ten were notified by the government in November last year and the first three were approved in March.
According to Nirmala Sitharaman (Hon’ble Finance Minister), in her speech on the budget of 2021-22, the government would invest Rs 1.97 lakh crore in the Production-Linked Incentive (PLI) scheme for 13 sector-specific programs, which will create jobs for the young and stimulate national manufacturing. It was introduced in March last year as part of Atmanirbhar Bharat’s domestic manufacturing expansion strategy.
The Commerce Ministry expects that the initiative will generate over $500 billion worth of goods over the next five years. PLI schemes for nine sectors have been approved by the Cabinet since early April.
Aside from working to reduce import duties and improve the competitiveness of local products, the scheme provides incentives to companies to increase their domestic manufacturing. PLI schemes offer incentives on incremental sales for domestically manufactured products. Six new schemes were approved after ten were notified by the government in November last year and the first three were approved in March. Implementation of the sector-specific schemes will be the responsibility of the involved ministries and departments.
The Cabinet announced in November last year that PLI savings from one approved sector can be transferred to another approved sector. In addition to its announcement of three new PLI schemes in March 2020, the Government of India announced ten more in November 2020:
- Prescription medications: Department of Pharmaceuticals
- Technology or Electronic Products: Ministry of Information & Electronics Technology
- Networking and Telecom Products: Department of Telecommunications
- Food Products: Ministry of Food Processing Industries
- ACS and LED (White Goods): Department for Promotion of Industry and Internal Trade
- Energy-Efficient Solar PV Modules: Ministry of New and Renewable Energy
- Auto Components and Automobiles: Department of Heavy Industry
- ACC (Advance Chemistry Cell) Battery: Department of Heavy Industry
- Specialty Steel: Ministry of Steel
- MMF segment and technical textiles: Textile Products: Ministry of Textiles
- Drug Intermediates (DIs)/Key Starting Materials (KSM) & Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
- Electronics Manufacturing on a Large Scale: Ministry of Electronics and Information Technology
- Medicinal devises manufacturing: Department of Pharmaceuticals
- There are food processing enterprises in all segments of the industry in India, from micro-companies to large corporations.
- The country has a competitive advantage due to its natural resource endowment, large domestic market, and potential for promoting value-added products.
- For Indian companies to realize the full potential of this sector, they must significantly improve their competitiveness vis-à-vis their global counterpart in terms of export scale, productivity, and value addition, and maintain their linkages with global value chains.
- Based on “AtmaNirbhar Bharat Abhiyaan for Enhancing India’s Manufacturing Capabilities and Enhancing Exports” the Production Linked Incentive Scheme for Food Processing Industries has been formulated.
The scheme’s objectives
- Providing support to food manufacturing companies with a requisite minimum sales level and a willingness to invest in expanding their processing capacities and developing their brands abroad to encourage the emergence of strong Indian brands.
- Build champions of food manufacturers across the globe.
- Strengthen Indian brands of food products so they are seen globally and accepted more readily abroad.
- Increasing the number of jobs available off-farm.
- Retaining farmers’ income by ensuring remunerative prices of agricultural products.
Summary of salient features
- There are Rs. 10900 crores allocated for this scheme in the Central Sector
- Incentives are included to motivate the production of four major categories of food products, viz. There is a wide range of Ready To Cook/ Ready To Eat foods (RTC/ RTE) available, such as millets-based products, processed fruits and vegetables, marine products, and mozzarella cheese.
- Innovative/Organic products of small businesses are also covered under the above component. These include free-range – eggs, poultry meat, and egg products.
- In the first two years, from 2021-2022 and 2022-2023, the selected applicant is required to invest in Plant & Machinery as quoted in their application (subject to the prescribed minimum).
- To meet the mandated investment, we will also need to invest in 2020-21.
- It will not be necessary for entities selected in the process of making innovative products/ organic products to meet Minimum Sales requirements and mandatory investment requirements.
- In the second component, support is provided for branding and marketing abroad to enhance the development of strong Indian brands overseas.
- A grant scheme is being developed to help promote the Indian brand abroad by providing grants to applicant entities for signage, shelf space, and marketing.
- It will be implemented over six years, beginning in 2021-22 and ending in 2026-27.
Targets and strategy for implementation
- There will be an all-India rollout of the scheme.
- Implementation of the plan shall be carried out by a Project Management Agency (PMA).
- The PMA is responsible for evaluating applications and proposals, verifying eligibility for support, scrutinizing claims that are eligible for incentive payments, and so on
- An incentive will be paid under this scheme over six years, ending in 2026-27. An incentive due for payment for a particular year will be due in the subsequent year. During the contract period of 2021-22 to 2026-27, the scheme will last for six years.
- The fund limit of the scheme, i.e. the cost shall not exceed the approved amount, is imposed. An incentive award maximum shall be determined in advance for each beneficiary at the time of their approval. There shall be no exceeding of this maximum regardless of achievement/performance.
- This program is expected to promote the expansion of processing capacity by 2026-27, which will enable processed foods worth Rs. 33,494 crore as well as providing jobs for almost 2.5 lakh people.
Methodology and Mechanisms of Administration and Implementation
- Cabinet Secretary would be the Chair of the Empowered Group of Secretaries at the Centre, which would monitor the Scheme
- An Inter-Ministerial Approval Committee (IMAC) would determine and approve which applicants were eligible for this scheme, and sanction and release incentives of funds would be decided.
- To move forward with the scheme, the Ministry will develop an Annual Action Plan that covers various activities.
- It would have a third-party evaluation process and midterm evaluation mechanism embedded in it.
A major impact on employment generation
- By executing the scheme, the processing capacities of the industry will be increased to produce processed foods worth Rs. 33,494 crores, and;
- Providing jobs for approximately 2.5 lakh individuals by 2026-2027.
A federal cabinet led by Prime Minister Shri Narendra Modi has approved the introduction of the Production-Linked Incentive (PLI) Scheme in the automobile and auto component industries to enhance manufacturing capabilities in the country and to increase exports – Atmanirbhar Bharat.
Who is eligible for this scheme?
There are different eligibility requirements for businesses under the PLI scheme, depending on the industry approved under the program. Taking telecom units as an example, eligibility is dependent on achieving the point of absolute and relative investment growth as well as manufacturing sales.
Investments in MSME companies are limited to Rs 10 crores and investments in other companies to Rs 100 crores. SME’s and other companies must hold 50% or more of their subsidiaries, if any, under food processing regulations. According to the Ministry of Food Processing Industries, SMEs are selected based on “their proposal, the novelties of their products and the level of their product development” among other factors.
In contrast, for businesses relating to pharmaceutical operations, the project must be a greenfield one, and the company’s net worth must not be less than 30 percent of its total investments. In addition, the company should provide a Domestic Value Addition (DVA) of at least 90% for fermentation-based products and at least 70% for chemical syntheses.
Production Linked Incentive (PLI) Schemes FAQs:
1. What incentives are offered by the PLI scheme?
2. When it comes to the auto industry, what is PLI?
3. Do PLI maturity amounts have to be taxed?
4. How does PLI benefit you?
5. Does India’s government provide production-linked incentives for certain manufacturing industries?
6. The PLI incentive is calculated in what way?
7. What does PLI not cover?
8. Do only government workers qualify for PLI?
9. Is there a limit to the number of PLI I can have?
10. Can we pay our PLI premium online?
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