India Incentivizes Production of White Goods, Solar Modules: New PLI Schemes
Eligible investors involved in the manufacture of air conditioners, LED lights, and related components as well as solar modules will be granted incentives under the latest production-linked schemes.
The schemes are implemented on a nationwide basis, seek to upgrade existing technologies, establish industrial ecosystems, and boost export activity. Detailed guidelines were released by the government in April and June 2021 (links shared in article).
On April 7, the Indian government approved PLI schemes for specific white goods and solar modules, with a five-year cumulative budget outlay of INR 107.38 billion (approx. US$1.43 billion).
Total incentives applicable under the Production Linked Incentive (PLI) Scheme for White Goods (Air Conditioners and LED Lights) will cost the government INR 62.38 billion (approx. US$831.27 million).
Total incentives for eligible investors in the production of solar modules will cost the government INR 45 billion (approx. US$599.99 million) under the Production Linked Incentive (PLI) Scheme ‘National Programme on High Efficiency Solar PV (Photo Voltic) Modules’.
How the PLI scheme applies to the white goods sector
The PLI Scheme for White Goods will extend an incentive of four to six percent on incremental sales of air conditioners and LED lights to companies that manufacture these goods in India, for a period of five years subsequent to the base year and one year of gestation period. (See April notification here.)
On June 4, 2021, the Department for Promotion of Industry and Internal Trade (DPIIT) released guidelines including the stipulation that an applicant can opt for any one of the following initial investment periods:
- April 1, 2021 to March 31, 2022
- April 1, 2021 to March 31, 2023
The application window for the PLI Scheme for White Goods shall be open from June 15, 2021 to September 15, 2021. Foreign investors should note that the application can be filed only by a company that is registered under the Companies Act, 2013 (that is, the applicant has to be a company incorporated in India) and wherever applicable, FDI requirements are also required to be complied with.
The PLI scheme separately earmarks different segments for types of components to attract targeted global investments and develop a component ecosystem within India.
To be eligible, companies must propose the manufacture of components or sub-assembly that is currently not done in sufficient capacity in India. In other words, the applicants must propose a significant investment into creating new manufacturing capabilities in the country. As such, companies engaged in the assembly of finished goods will not be eligible for incentives under this scheme.
Also, investment in land and building (including factory building or construction) required for the project or unit will not be considered for determining the applicant’s eligibility under the PLI Scheme.
Target segments under air conditioners are:
- Air conditioners (components – high value intermediates or low value intermediates or sub-assemblies or a combination thereof) ⟶ large investments; normal investments
- High value intermediates (copper tubes, aluminum foil, and compressors) ⟶ large investments, normal investments
- Low value intermediates (PCB assembly for controllers, BLDC motors, service valves, and cross flow fans for AC and other components) ⟶ large investments; normal investments
Target segments under LED lights are:
- LED lighting products (core components like LED chip packaging, registers, ICs, fuses, and large scale investments in other components, etc.) ⟶ large investments; normal investments
- Components of LED lighting products (like LED chips, LED drivers, LED engines, mechanicals, packaging, modules, wire wound inductors, and other components) ⟶ large investments; normal investments
Companies that meet the pre-qualification criteria for different target segments will be eligible to apply to the PLI Scheme.
Incentives will be open to companies making either brownfield and/or greenfield investments. Companies investing in basic/core components shall have a higher priority. Within a target segment, ‘large investment’ shall have a higher priority over ‘normal investment’. Investment in R&D should not exceed 15 percent of the total committed investment.
Thresholds of cumulative incremental investment and incremental sales of manufactured goods over the base year must be met to claim incentives.
An entity that secures benefits under any other PLI Scheme for the same products cannot apply to this scheme. However, the entity participating in the PLI Scheme may take benefits under other applicable national schemes or state government schemes.
Companies in the AC and LED industries that apply for PLI benefits have to meet the compulsory BIS and BEE Quality standards for sales into domestic market and applicable standards for global markets. Any software used associated with R&D should have been procured or licensed through legally valid documents after payment of applicable taxes and duties.
How the PLI scheme applies to the solar energy sector
The National Programme on High Efficiency Solar PV (Photo Voltic) Modules seeks to build up the indigenous manufacturing capacity of giga watt (GW) scale in high efficiency solar PV modules.
Currently, India’s solar power generation depends on imported solar PV cells and modules as the domestic manufacturing industry has limited capacity. The sector’s PLI Scheme aims to reduce import dependency as national renewable power production is of strategic importance to India.
Eligible solar PV manufacturers will be selected through a transparent and competitive bidding process. Production-linked incentives will be disbursed for a period of five years, after the commissioning of the solar PV manufacturing plants, and on sales of high efficiency solar PV modules.
Manufacturers will be rewarded for higher efficiencies of solar PV modules and if they source their material from the domestic market. Thus, the PLI amount disbursed will increase with increased module efficiency and increased local value addition.
The intended outcomes of the scheme are as follows:
- Additional 10,000 MW capacity of integrated solar PV manufacturing plants in India
- Direct investment of around INR 172 billion (approx. US$2.30 billion) in solar PV manufacturing projects
- Demand of INR 175 billion (approx. US$2.35 billion) over five years for ‘Balance of Materials’
- Direct employment of about 30,000 and Indirect employment of about 120,000 persons
- Import substitution of around INR 175 billion (approx. US$2.35 billion) every year
- Impetus for R&D to achieve higher efficiency in solar PV modules
The DPIIT and the Ministry of Renewable Energy (MNRE) came out with guidelines for companies to avail the incentives on April 28, 2021. This can be downloaded here from the MNRE website.
This article was originally published on April 19, 2021. It was last updated on June 9, 2021.
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