Cabinet decisions: Biggies to benefit from PLI for pharma, IT hardware

By: |
February 25, 2021 4:11 AM

Schemes aim at total incremental sales of Rs 6.2 lakh crore, creation of 2.8 lakh jobs

The rate of incentive for products in the first and second categories will be to the tune of 10% (of incremental sales value) for the first four years, 8% for the fifth year and 6% for the sixth year of production.The rate of incentive for products in the first and second categories will be to the tune of 10% (of incremental sales value) for the first four years, 8% for the fifth year and 6% for the sixth year of production.

The Cabinet on Wednesday cleared production-linked incentive (PLI) schemes for pharmaceuticals and IT hardware, including laptops, which would cost the government as much as Rs 22,350 crore.

Shedding the historical, costly bias in favour of small companies, the government has earmarked big bucks for big firms with elevated export potential. Under the scheme for pharmaceuticals, as much as Rs 11,000 crore (73% of the total incentives of Rs 15,000 crore) will be extended to eligible applicants whose global manufacturing revenue was in excess of Rs 5,000 crore in FY20. Similarly, the firms with manufacturing revenue of Rs 500-5,000 crore in FY20 will be granted incentives of Rs 2,250 crore.

The relatively small ones, with FY20 revenue below Rs 500 crore, will get Rs 1,750 crore. Any unutilised incentives, meant for the firms with revenue in the range of Rs 500 crore to Rs 5,000 crore, could later be distributed among larger players.

The PLI scheme for manufacturing of IT hardware including laptops, tablets, all-in-one PCs and servers, has an outlay of Rs 7,350 crore over a four-year period and a total of 15 companies, five global players and 10 domestic firms, are expected to benefit from it. The incentives are expected to generate additional investments of `2,700 crore and result in incremental production of `3.26 lakh crore, 75% of which for exports.

The government expects the scheme to reduce India’s import dependence for IT hardware in a major way – currently, 80% of the country’s laptop and tablet demand is met through imports.

The scheme, to commence from April 1, will enable domestic value addition in IT hardware to rise from 5-10% at present to 20%-25% by 2025. Under the scheme, incentives of 4% to 1% on net incremental sales over the base year (2019-20) will be given to the beneficiary companies. It is also expected that the scheme could generate over 1.8 lakh direct and indirect jobs over the four- year period.

The duration of the pharmaceutical PLI scheme will be from FY21 to FY29. This will include the period for processing of applications (FY21), optional gestation period of one year (FY22) and incentives for six years (FY23-FY28). The disbursement of incentive for sales during FY28 will take place in FY29.

According to official estimates, the scheme is likely to bring in investment of Rs 15,000 crore. It will also result in total incremental sales of Rs 2.94 lakh crore and additional exports of Rs 1.96 lakh crore over six years through FY28, apart from fetching handsome amount of direct and indirect taxes. It is expected to generate a total of one lakh jobs—20,000 direct and 80,000 indirect. At the same, it will improve research and development in the critical sector and help the goal of affordable healthcare for the population.

The PLI for pharmaceuticals was one of the 13 such schemes announced by the government in the wake of the Covid-19 pandemic last year. The idea is to lure mainly large companies to create “global champions” out of India that have the potential to grow in size using cutting-edge technology and can, thereby, penetrate the global value chains.

The total incentives under the PLI schemes, covering sectors including telecom, electronics, auto part, pharma, chemical cells and textiles, stood at Rs 1.97 lakh crore over a five-year period.

The pharmaceutical PLI scheme under three categories. The first category will include biopharmaceuticals; complex generic drugs; patented drugs or drugs nearing patent expiry; cell-based or gene therapy drugs; orphan drugs; special emptycapsules like HPMC, Pullulan, enteric, etc; complex excipients and phyto-pharmaceuticals.

The second category will include active pharmaceutical ingredients and drug intermediates. The third category will cover all the drugs that are not captured in the first two, including re-purposed drugs, auto immune drugs, anti-cancer and anti-diabetic drugs.

The rate of incentive for products in the first and second categories will be to the tune of 10% (of incremental sales value) for the first four years, 8% for the fifth year and 6% for the sixth year of production.

The incentives for the production of the rest of the pharma products will be 5% (of incremental sales value) for first four years, 4% for the fifth year and 3% for the sixth year.

The Indian pharmaceutical industry is the third-largest globally in terms of the volume term of production and is worth $40 billion in value term. The country contributes 3.5% of total drugs and medicines exported globally.

Currently, India’s annual laptop imports are to the tune of Rs 29,500 crore and tablet imports are at Rs 2,870 crore. The market for IT hardware is dominated by 6-7 companies globally which account for about 70% of the world’s market share.

Earlier, the government has approved two PLI schemes on similar lines, one for mobile phones and the other for telecom equipment. While the outlay for mobile phones has been kept at Rs 41,000 crore for a period of five years providing incentives ranging between 4-6%, the one for telecom equipment has an outlay of Rs 12,195 crore for a period of five years providing incentives in the range of 4-7%.

In the case of mobile phones PLI, the government has already selected five global and five domestic firms, while the detailed guidelines for the telecom equipment PLI scheme is yet to be finalised.

Highlighting the success of PLI scheme for mobile phones, communications IT minister Ravi Shankar Prasad said in the last five months of scheme operation and despite challenging times, the applicant companies, including top global mobile phone companies, have produced goods worth Rs 35,000 crore and invested Rs 1,300 crore. Additional employment generation during this period stands at around 22,000 jobs.

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