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Production-linked incentive: Govt may reopen PLI scheme for air-conditioners and LED bulbs

The PLI scheme was notified on April 16, 2021, and its guidelines were published on June 4.

Interested investors had time up to September 15 last year to apply for the scheme.

The government is considering a proposal to reopen the application window for the Rs 6,238-crore production-linked incentive (PLI) scheme for air-conditioners (ACs) and LED bulbs to accommodate more players in response to unusual interest displayed by this industry.

Alternatively, it may explore the option of opening up the scheme to producers of other white goods outside the ambit of the programme.

“A final decision on the issue will be taken soon,” Anil Agarwal, additional secretary in the department for the promotion of industry and internal trade (DPIIT), told FE. He conceded that within the proposed budgetary outlay for the scheme, there is scope to incentivise more investments than what has been pledged by the 42 companies already selected by the DPIIT.

The PLI scheme was notified on April 16, 2021, and its guidelines were published on June 4. Interested investors had time up to September 15 last year to apply for the scheme.

Some of the large AC players that FE spoke to backed the idea of giving another chance to those who missed out on the opportunity in the first instance and also to those players who have been selected under the scheme and want to step up investments beyond the already-committed levels.

Daikin India MD and chief executive Kanwal Jeet Jawa said his company is willing to invest Rs 500 crore over and above its current PLI commitments. The company has already pledged to invest Rs 580 crore and is setting up a unit over 75 acres in Sri City in Andhra Pradesh, he added.

Manish Sharma, chief executive at Panasonic India, said his company has already made its commitments and is “currently evaluating the situation”.

CP Mukundan Menon, president and chief operating officer (cooling and purifications appliances group) of Blue Star, said while his company may not invest more than what is committed, but opening up the window again will surely give a chance to many others. Blue Star is investing Rs 525 crore in putting up a new facility in Sri City. Of this, Rs 100 crore qualifies as the PLI investments, Menon added.

The government had, in November 2021, selected 42 companies – including Daikin, Hitachi, Panasonic, Voltas, Blue Star, Mettube, Dixon and Havells— that had committed investments of Rs 4,614 crore to avail of incentives under the PLI scheme. Six other applicants proposing foreign direct investment (FDI) were asked to seek the necessary approval and one of them has just received it.

Of the selected candidates, 26 companies have pledged investments of 3,898 crore in component manufacturing for ACs, while 16 will invest 716 crore in making LED parts.

The incentives will flow in from the next fiscal at 6% (if the investments start from FY22) and will be trimmed to 5% by FY25 and then to 4% in FY27.

The scheme is expected to raise the level of domestic value addition in these segments from the current 15-20% to 75-80%. The selected companies will produce components of ACs and LED bulbs that are not usually manufactured in India now.

The scheme will be implemented over a seven-year period, from FY22 to FY29. The government expects the scheme to lead to incremental production of Rs 81,254 crore and create direct employment opportunities for 44,000 people.

The total incentives of Rs 6,238 crore will be disbursed over five years.

The AC players hailed the scheme. Daikin’s Jawa, who is also the president of the Refrigeration and Air-conditioning Manufacturers Association, said the industry is finally getting the much-needed attention of the government. The PLI push was aimed at raising the country’s annual AC production to 40 million in 10 years from just about four million earlier. About 75% of the country’s AC components are imported from countries, including Thailand, China and Malaysia. “This must change, and the PLI scheme is an important driver of this change,” Jawa said.

Panasonic’s Sharma said one of the key steps to boost manufacturing and exports is backward integration. “As component manufacturing is a key beneficiary of this policy, indigenous AC manufacturing will get a fillip, enabling design-led manufacturing and fuel innovation, and drive component exports along with finished ACs from India,” he added.

Mukundan Menon of Blue Star said the scheme will bolster the ecosystem of AC components, which will drive up not just domestic manufacturing but also exports.

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