Policy shift: Big incentives for big firms, to boost exports primarily

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November 12, 2020 8:00 AM

Baba Kalyani, chairman of Bharat Forge, said, "The inclusion of high-demand high-technology items such as semi-conductor fab, IoT devices and ACC batteries in the newly-announced PLI scheme will greatly boost India's manufacturing ….”

The move will also create economies of scale and make India an integral part of the global supply chain.The move will also create economies of scale and make India an integral part of the global supply chain.

Signifying a new policy paradigm where global-sized players are unapologetically celebrated and promoted through incentives, the Cabinet on Wednesday approved an umbrella production-linked incentive (PLI ) scheme for 10 high-potential sectors, including auto, battery cell, pharma, telecom networking, food and textiles.

The scheme, estimated to cost of Rs 1.46 lakh crore over a five-year period, will set high bars for businesses to avail the incentives, such as exacting standards of incremental annual production and exports.

It also marks a renewed focus on Make in India and shift away from a long-standing MSME bias; while local manufacturing is the ostensible objective, there will be implicit impetus for large-scale exports.

Together with the Rs 51,311 crore allocated for three PLI schemes (in electronics/mobile phones, active pharma ingredients and medical devices ) announced in the aftermath of the Covid-19 outbreak, the cost to the exchequer will be close to Rs 2 lakh crore over five years.

Briefing reporters after a Cabinet meeting, finance minister Nirmala Sitharaman said, the schemes will make manufacturers globally competitive, attract investments in key sectors, increase exports, promote self-reliance and boost jobs. The move will also create economies of scale and make India an integral part of the global supply chain.

The move will also create economies of scale and make India an integral part of the global supply chain.

The decisions will also help improve the share of manufacturing, which has been languishing at 16-17% of GDP for about three decades now, to the targeted level of 25%.

Prime Minister Narendra Modi tweeted: “Cabinet decision of PLI scheme for 10 sectors will boost manufacturing, give opportunities to youth while making India a preferred investment destination. This is an important step towards improving our competitiveness & realising an Aatmanirbhar Bharat.”

While the details of the new scheme for each sector will be finalised soon, these are expected to be tailor-made to suit exports as well, without contravening the WTO rules that usually prohibit export subsidies. For instance, in the case of the already-announced PLI scheme for mobile phones, the Rs 40,000-crore incentive over five years is to be given only for phones whose ex-factory price is $200 or above.

On October 6, 16 proposals entailing investment of Rs 11,000 crore were approved under the PLI scheme for mobile phones; Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron were the beneficiaries. Of the total production worth `10.5 lakh crore to be facilitated over five years, around 60% is seen to be exported.

Industry captains hailed the latest move. Adi Godrej, chairman of Godrej Group, said, “Bringing food processing under the PLI scheme would revolutionise the sector. While India is world’s leading producer of fruits, vegetables and milk but the percentage of processing is much below the global average. We process only 7% of the total farm produce. The scheme would help attract more investment.”

Tata Steel managing director TV Narendran, who is also CII’s president-designate, said: “The robust performance of the steel industry has a multiplier effect on other industries as well….this scheme will prove to be a gamechanger.”

CII president Uday Kotak called the decision “futuristic and progressive”. “It identifies the right sectors and products across core industries, labour-intensive manufacturing, and export-oriented sectors as well as advanced technology products,” Kotak said.

Baba Kalyani, chairman of Bharat Forge, said, “The inclusion of high-demand high-technology items such as semi-conductor fab, IoT devices and ACC batteries in the newly-announced PLI scheme will greatly boost India’s manufacturing ….”

Sharad Kumar Saraf, president of exporters’ body FIEO, said, “By helping the manufacturing sector to ensure economies of scale with modern and high-end technology, the scheme will boost investment, attract FDI, scale up domestic capacity and enhance exports in a big way.”

As part of the decision, the government will allocate, over five years, as much as Rs 57,042 crore for auto & auto components, Rs 18,100 crore for advance chemistry cell battery, Rs 15, 000 crore for pharmaceuticals, Rs 12,195 crore for telecom networking products, Rs 10,900 crore for food products, Rs 10,683 crore for technical textiles, Rs 6,322 crore for speciality steel, Rs 6,238 crore for white goods such as Acs, Rs 5,000 crore for electronic products and Rs 4,500 crore for solar PV modules.

The PLI scheme will be implemented by the ministries/departments concerned and will be within the overall financial limits prescribed. The final proposals of PLI for individual sectors will be appraised by the Expenditure Finance Committee (EFC) and approved by the Cabinet, espected to be over within a month.

“Savings, if any, from one PLI scheme of an approved sector can be utilized to fund that of another approved sector by the empowered group of secretaries. Any new sector for PLI will require fresh approval of the Cabinet,” according to an official release.

As FE had reported earlier, NITI Aayog had favoured the launch of PLI in these 10 sectors. Funds for PLI schemes, which must be operational for a maximum of 5 years, can be hiked at 10% a year, it had suggested.

NITI Aayog chief executive Amitabh Kant said, “Promotion of the manufacturing sector and creation of a conducive manufacturing ecosystem will not only enable integration with global supply chains but also establish backward linkages with the MSME sector.”

“We welcome the move to extending PLI scheme to specialty steel products. This will enable the steel industry to attract fresh investment and state of the art technology that would make India self-reliant in producing value-added specialty steel products,” said Seshagiri Rao, joint MD and Group CFO, JSW Steel.

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