India’s Production-Linked Incentive Scheme for Pharmaceuticals, IT Sectors Among Others

Posted by Written by Yashoda Kapur Reading Time: 4 minutes

India has identified specific sectors that can benefit from targeted incentives, so they improve their manufacturing capacities, production output, and generate employment.

A key program in this regard is the Production-Linked Incentive (PLI) scheme, that has gained favor since last year as way for the government to identify key players in respective industries to lead sectoral growth.

In its latest iteration, the pharmaceuticals and IT sectors have been assigned a budget outlay of US$2.04 billion and US$1 billion, respectively, by the federal government.

The assigned outlay for the IT sector is reportedly expected to benefit a total of 15 companies, out of which five will be global companies and 10 will be domestic companies. 

Given recent news coverage of Apple lobbying for a bigger budgetary outlay from the Indian government to start local manufacturing of iPads in India, it is expected that they are among the global beneficiaries. Similarly, Chinese electronics companies, Huawei and Xiaomi, are also interested in expanding their production bases in India and could be contenders for this scheme, despite New Delhi’s apparent push for independence from Chinese imports and technology investments.

For the pharmaceuticals sector, the scheme will last for a duration of nine years from 2020-21 to 2028-29 for the purpose of creating a wide range of affordable medicines for consumers.

On the other hand, with aid from the scheme, the IT sector will be able to contribute to India’s overall creation of exportable hardware IT products that are expected to be worth US$33 billion at the end of four years. These goods include laptops, tablets, servers, and personal computers (PCs).

PLI scheme for pharmaceuticals sector

In six years, from 2022-23 to 2027-28, the government expects India’s pharmaceutical sector to produce high-value products, as well as increase the value addition of its exports. Expected production of incremental sales worth US$40 billion and incremental exports worth US$26 billion will be possible due to the opening of 20,000 direct and 80,000 indirect jobs for both skilled and unskilled laborers.

Besides contributing to domestic demand and employment, the PLI scheme also aims to explore the untapped potential in the pharmaceutical sector, to grow in size and scale with the help of cutting-edge technology and investment capital that will allow it to move up the global supply chain of medicines.

In addition to accessibility and affordability, the medicinal products should also promote innovation and high-tech development that can suit the needs of emerging medical technologies, such as in-vitro diagnostic devices.

PLI scheme for IT sector

To lead India towards the goal of becoming a global supplier of information technology (IT) hardware, the government will provide the sector with an incentive on net incremental sales of goods manufactured during a four-year period. Production and sales of IT goods could provide direct and indirect employment to over 180,000 persons during the four years.

The government is keen to reduce India’s huge import demand driven by its IT services industry and large domestic market. The government also intends to provide impetus to the growth of domestic value addition of IT exports, which are already expected to rise to 20-25 percent by 2025 from the current five to 10 percent.

Localization clause

For the IT sector, the PLI scheme aims to reduce its import dependence on foreign manufacturers – as currently 80 percent of India’s laptop and tablet demand is met by imports. However, the proposed clause for localization under this scheme, to produce laptops, tablets, servers, and PCs, has left the industry divided.

Currently, India’s annual laptop imports stand at US$4 billion and tablet imports at US$391 million. Foreign manufacturers deem localization to be unfair; according to the WTO’s import rules, their manufactured goods must be treated on par with India’s domestically manufactured goods.

The PLI scheme recommends companies to begin localization from a certain timeframe in order to avail its incentives. Under this localization clause, selected companies (no given process of selection or who all have been selected yet) will be required to locally produce certain electronic components, such as printed circuit boards (PCBs), battery packs, power adapters etc. PCBs must start being assembled locally in the second year, battery packs in the third year – either the applicant company itself or through one of its vendors, and power adapters in the fourth year.

Leading tech companies, such as Hewlett-Packard (HP), Lenovo, Dell, and Acer are currently involved in varying stages in the domestic manufacture and assembly of IT hardware and are expected to take up localization if they wish to avail the incentives under the PLI scheme.

Other target sectors under the PLI scheme 

Besides pharmaceuticals and IT, the PLI scheme intends to benefit other target sectors to make them globally competitive, by increasing their manufacturing and exporting capabilities and attracting foreign investments. Each of these sectors are expected to eventually become an integral part of the global supply chain, while simultaneously cutting down on their imports.

The following seven sectors have been identified as intended beneficiaries of the PLI scheme with the government allocating budget outlay for the next five years:

  • Advance chemistry cell (ACC) battery sector – will be reportedly aided in incentivizing large domestic and global companies to contribute towards making the sector more competitive within India itself. Assigned outlay of US$2.46 million.
  • Automobiles and auto components sector – will be reportedly aided in becoming more globally competitive. Assigned outlay of US$7.7 billion.
  • Telecom and networking products sector – will be reportedly aided in attracting large foreign investments that will help domestic companies emerge in the global export market. Assigned outlay of US$1.6 billion.
  • Technical textiles and textile products in the man-made fiber (MMF) segment – will be aided in attracting large investments to boost domestic manufacturing. Assigned outlay of US$1.4 billion.
  • Solar photo-voltaic (PV) modules sector – will be aided in incentivizing domestic and global companies to build the capacity for large-scale solar PV module manufacturing and then assimilate into its global supply chain. Assigned outlay of US$613 million.
  • Specialty steel sector – will be aided in enhancing the manufacturing of value-added steel that will be then expected to raise its total exports. Assigned outlay of US$861 million.
  • Food products sector – will be aided in identifying the specific food products whose production will be able to bring in medium-to-large-scale employment (refers to employing between 50-250 persons). Assigned outlay of US$1.48 billion.

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India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for business support in India.

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