As the government plans to revise the production-linked incentive (PLI) scheme for IT hardware, the companies which are currently availing the scheme want the investments – made so far by them – to be secured, so that when the transition happens, they don’t suffer in any manner.
The selected companies have been in regular discussions with the ministry of electronics and IT (MeitY) regarding the modalities for the rollover from the existing scheme to the new one. “How people transfer their investments from PLI 1 to PLI 2 is under discussion by the industry and individual companies. We have to make sure that people, who have supported the initiative should not suffer when the revision happens,” said an executive with one of the selected companies for the scheme.
To make the scheme more attractive, MeitY is working on a revised incentive structure, that may be announced in a few months. The government is hopeful that with higher incentives, more firms like Samsung and Apple, which have not participated in the scheme, come forward with manufacturing plans in India.
As part of the scheme, which became effective on April 1 last year, 14 companies (4 global and 10 local) have been selected. To avail incentives, the global firms need to invest Rs 50 crore in the first year and have incremental production worth Rs 1,000 crore. For local firms, the investment amount is Rs 4 crore and incremental production should be worth Rs 50 crore. The scheme offers incentives for manufacturing laptops, tablets, all-in-one personal computers (PCs) and servers in the country.
The IT hardware scheme has not been that successful because of the low incentive structure. Companies like Dell, HP, Acer and others are participating in the scheme, but it is primarily because these firms have been present in India for a while and had some existing production. The scheme failed to attract new companies to start manufacturing.
There were problems right from the start with the IT hardware scheme. When the government announced the scheme on February 24, 2021, the outlay was fixed at Rs 7,350 crore over four years. During this period, the government had estimated production of up to Rs 3.26 lakh crore, of which exports were expected to be of the order of Rs 2.45 lakh crore. Later that year on May 4, when the Centre announced the names of the companies which had applied for the scheme, the production target was slashed to Rs 1.60 lakh crore of which exports would be of the order of Rs 60,000 crore.
Since the incentive structure is based on achieving a minimum threshold of incremental sales over the base year going up to a maximum limit, with companies committing lower production target the outlay of Rs 7,350 crore automatically got pruned by half.
IT hardware manufacturers blamed this on the low incentive structure which works out to an average of 2-2.5% over a four-year period which does not justify relocating units from China or Vietnam, especially for hardware products where import duties are nil as they fall under Information Technology – I products.
The incentive structure for mobile phones PLI, which got operationalised in August 2020 and saw companies committing up to the maximum limit, works out to around 4.5% over five years.
Industry executives feel that the ideal incentive structure for IT hardware should be in the range of 7% to 8%.