Handset makers: Govt not keen to roll over PLI scheme milestones

By: |
January 22, 2021 4:45 AM

The reason cited by ICEA for the rollover is stuck supplies of components and travel restrictions due to suspension of international flights, etc, which have delayed production by the new units.

As reported earlier, the proposal for the rollover of production targets has been submitted to MeitY by the industry body, India Cellular Electronics Association (ICEA). Samsung, however, is not a member of this body.

The initial view of the ministry of electronics and information technology (MeitY) is against rolling over first year’s production targets for companies which have been selected under the production-linked incentive (PLI) scheme for domestic mobile manufacturing.

Officials said the ministry’s view is that rolling over the targets may not be possible because the same was approved by the Cabinet, and any change may also need the Cabinet’s approval. Further, since some of the companies – for instance South Korean major Samsung – selected under the scheme would be able to meet their production targets by March 2021, granting approval to some others which may miss the targets would be according a case-to-case treatment, and this would be against policy principles.

Since there’s an empowered committee which is monitoring the PLI scheme, it may at some stage consider the request for a rollover and make a recommendation to the government but so far no such decision has been taken.

The empowered committee (EC) is an inter-ministerial body which has the power to revise incentive rates, target segments, ceilings, and eligibility criteria of the PLI scheme for handsets. It includes the NITI Aayog CEO along with the secretaries of departments of economic affairs, expenditure, revenue, MeitY, department for promotion of industry and internal trade (DPIIT) and the directorate general of foreign trade (DGFT).

As reported earlier, the proposal for the rollover of production targets has been submitted to MeitY by the industry body, India Cellular Electronics Association (ICEA). Samsung, however, is not a member of this body.

The reason cited by ICEA for the rollover is stuck supplies of components and travel restrictions due to suspension of international flights, etc, which have delayed production by the new units. The proposal for rollover is for those units which have met their investment targets but due to such reasons beyond their control are not able to meet their production targets for March 2021.

Though not cited in the letter, industry sources said a major reason for the delay in production is the delay in issuing of visas to Chinese engineers and technicians who are required to set up the new units here. Since most of the units are shifting from China, the units can be set up only by Chinese engineers. The Indian embassy in Beijing is now fast-tracking such visa requests.

“The PLI applicants are working furiously and with everything possible at their command to fulfil the targets. Many of them will be able to complete it but not before early FY21-22; and a handful will even be able to complete by March 2021. However, they are skating on thin ice because there could be many slips in these extraordinary circumstances. Most companies have exhibited sincerity by ensuring that they have either already or will try and complete their investment targets by March 2021. Clearly, if investments are completed, there is no reason for the companies to hold back production. This itself is sufficient ground to appreciate that all PLI participants have approached the scheme in good faith and the shortfall in production targets for FY21 are purely a result of supply constraint,” Pankaj Mohindroo, chairman of ICEA, had written to Ajay Prakash Sawhney, MeitY secretary, last month.

The ICEA’s proposal is that applicants who complete the investment target before March 31, 2021, would have established their seriousness and commitment and therefore must be rewarded. It has said such applicants who have met investment targets and achieved base production should be given the PLI on incremental production irrespective of whether they have met the incremental turnover target for the FY20-21. This will mean a lower outflow from the budget allocated for PLI during the current year, and by adjusting the target. “We believe this is well within the powers of the empowered committee,” Mohindroo has written.

The PLI scheme has set different targets for overseas manufacturers like Apple and Samsung and Indian players like Lava and Micromax. The incentives range between 4% and 6% annually. In the first year – FY21 — overseas players are required to make an investment of Rs 250 crore and manufacture goods worth Rs 4,000 crore more than the previous year. The phones made by overseas players should have an invoice value of over Rs 15,000. In the case of Indian players, the investment target is Rs 50 crore and they have to manufacture phones worth Rs 500 crore in the first year.

The formula suggested by ICEA is thus: For FY21 against Rs 4,000 crore, the applicant, say has achieved only Rs 2,000 crore and there is a shortfall of Rs 2,000 crore, as per this recommendation, the company should be paid 6% on Rs 2,000 crore and the balance Rs 2,000 crore, the applicant can opt to add in the incremental turnover criteria in either of the FY22 or FY23. This will ensure that the production targets over the five year period are not reduced. Therefore, the spirit of PLI remains intact.

Foxconn units like Hon Hai and Rising Star, which are contract manufacturers for Apple, Wistron and Pegatron, also contract manufacturers of Apple, and Samsung are among the overseas players selected under the PLI scheme. Among the domestic players those selected are Lava, Bhagwati (Micromax), Padget Electronics, UTL Neolyncs and Optiemus Electronics.

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