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PLI (Product Linked Incentive) Scheme

Updated: Dec 10, 2021

Product linked incentive schemes were first introduced in India in March 2020, targeting three sectors. However, the PLI concept has since expanded with schemes rolled out for multiple sectors to make India self-sufficient in manufacturing products and cater to domestic and international markets.

PLI scheme aims to position India as a global manufacturing hub by improving the local supply chain, developing key downstream operations, and incentivizing investments in high-tech production.

Backing the ‘AatmaNirbhar Bharat Abhiyan’ (Self-Reliant India) movement launched by Prime Minister Narendra Modi, a chain of reforms has been introduced to promote the ease of doing business in India. From creating next-gen infrastructure to boosting exports, the government has been preparing strategies for businesses to thrive. It continues to roll out the red carpet for global investors to choose India as their preferred investment destination.

Adding to the chain of reforms is the recently announced production-linked incentive (PLI) schemes providing a meaningful turn in India’s industrial policy. The basic foundation on which the PLI schemes stands are as follows:

1.Outcome-based and result-oriented

It means that incentives will be expended only after production has taken place in the country.y.

2. Connecting incentives to output

The computation of incentives will be based on incremental production to

be attained at a high rate of growth. To accomplish this cumulative

production, beneficiaries will be required to make additional The

computation of incentives will be based on incremental production to be

attained at a high rate of growth. To accomplish this cumulative

production, beneficiaries will be required to make additional investments

in establishing green-field facilities or carrying extensions of existing


3. Generating ‘champions’ to maximize the impact

The scheme targets on size and scale by selecting those players who can convey on volumes. The targeted nature of the scheme will make it highly essential, and the beneficiaries are likely to become globally ambitious.

Selection of sectors has merely been based on its range to cover cutting-edge technology, integrate with global value chains and create large-scale employment.

The strategy behind the program is to offer incentives to the companies on incremental sales from products manufactured in India over the base year. This program also invites foreign companies to set up units in India along with inspiring local companies to set up or enlarge existing manufacturing units, generate more employment and cut down the country’s dependency on imports of goods.

In the Union Budget of 2021-22, Finance Minister Nirmala Sitharaman announced an outlay of INR 1.97 lakh crores ($26 bn) for the Production Linked Inceptive (PLI) program for 13 key sectors to achieve the following:

1.Make domestic product manufacturing globally competitive,

2.To create global champions in manufacturing,

3.To boost existing capacities or set up new capacities in domestic 4.manufacturing for sunrise and strategic sectors,

5.Limit cheaper imports,

6.Reduce import bills,

7.Improve cost competitiveness of domestically manufactured goods,

8.Enhance export capacity, and

9.Generate employment

It covers key sectors of ESDM, Automobile, Battery, Pharma, Food, Textiles, Steel, And Telecom, the program emphasis providing incentives on an average of 5% of the production value. It implies that minimum production resulting from the scheme stands to be around $520 bn over the next coming years. The ideology behind this program is to create a few big manufacturing players in the market with the edge of policy support to the tune of 5-8% of value add, scale, and world-class technology. The program also aims to boost exports globally, thus narrowing the trade deficit due to imports by $55 bn.

The first three PLI Schemes covering Mobile Manufacturing, Specified Electronic Components, Critical Key Starting materials/Drug Intermediaries, Active Pharmaceutical Ingredients and medical devices were approved earlier in March 2020, and these were supervised by another 10 New PLI Schemes in November 2020.

The PLI scheme is essentially the incentive to companies to boost products. They could be in the form of tax rebates, import and export duty allowance, or maybe easier land-accession terms. Generally, the benefits of a PLI scheme are passed on to the final consumers of the goods in terms of lower price.

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