Tracking investments: Ministries asked to move faster on PLI schemes

By: , and |
August 30, 2021 4:15 AM

Barring smartphones, other schemes slow to take off

Providing incentives will work well and ensure that the focus is on being fair to labour.Providing incentives will work well and ensure that the focus is on being fair to labour. (Representative image)

The government has nudged line ministries to expeditiously sort out all issues related to the various production-linked incentive (PLI) schemes so that investments flow in soon. While guidelines for some sectors are yet to be framed for others, where the process is complete, industry’s concerns about the rules have not been addressed.

Little progress has been seen in most PLI scheme barring the one for smartphones, although schemes for 13 sectors, with a total outlay of Rs 2 lakh crore, were announced by November 2020. This is despite the Cabinet approval having been accorded to 11 sectoral schemes. Only two sectoral schemes – textile products and auto and auto components – are yet to get Cabinet approval because the guidelines have still not been framed.

In certain areas, like IT hardware, white goods and solar PV modules, the guidelines have been framed. However, the industry is yet to respond fully or it has issues with clauses like incentives and supply chains.

Again, the proposed Rs 10,683-crore PLI scheme for products made of man-made fibre and technical textiles is yet to be cleared by the Cabinet because the industry is pressing for a reduction in the “ambitious” turnover and investment targets proposed.

The draft scheme had pledged an incentive of as much as 11% for large companies for investments over Rs 500 crore in greenfield projects. The benefit, however, was linked to an incremental turnover of Rs 1,500 crore in the first year and a 25% rise in turnover each year after that.

The garments sector, comprising mainly MSMEs and dominated by cotton-based players, also wants value-added cotton products included in the scheme so that a large number of businesses will be benefited.

However, the demands go against the government’s intent of luring mainly large companies to create a few champions in key sectors through the various PLI schemes.

Interestingly, some players, who are struggling to cope with a Covid-induced liquidity squeeze, want the roll-out of the scheme to be deferred so that they have time to ready themselves to take advantage of the schemes.

As reported by FE, the dilemma over fixing the base year and whether to allow suppliers of Chinese origin to invest are the two major impediments delaying the framing of guidelines, and Cabinet approval for the Rs 57,042-crore auto sector PLI. For the 11 sectors where approvals have been granted so far, the base year is FY20. The problem with the auto sector is that the industry’s sales numbers so far in the current fiscal have not been able to touch the FY20 levels.

The Rs 6,238-crore PLI scheme for white goods was notified on June 4 and the application window was opened on June 15 and closes on September 15. A senior government official said some companies have already evinced interest and some others are in the process of filing applications.

For solar PV modules, the Indian Renewable Energy Development Agency (IREDA), had in May-end invited applications from solar module manufacturers for availing the Rs 4,500-crore scheme. The Cabinet had cleared the scheme on March 31. The last date for submitting applications was initially set as June 30, later extended to August 31, and subsequently to September 15.

“The legal and financial aspects of the scheme call for elaborate documentation and paperwork, like the submission of audit reports and compliance with specific formats, for which firms have sought extension of the deadline for filing applications for the scheme,” Rajat Gupta, general manager of marketing and communications of Goldi Solar, told FE. “Since the scheme is new, a number of clarifications are being raised by the industry leading to the postponement of the bid submission timelines,” a senior official from a major renewable energy company said.

In the IT hardware sector comprising laptops, tablets, all-in-one personal computers (PCs) and servers, the scheme was notified on March 3 and subsequently 14 companies were selected – 4 global and 10 Indian – but problems continue right from the start. First, even before the scheme got operationalised, the government had to cut the output as manufacturers turned up with low bids.

When the government had announced the scheme on February 24, the outlay was fixed at Rs 7,350 crore over a four-year period. During this period, the government had estimated a production of up to Rs 3.26 lakh crore, of which exports was expected to be of the order of Rs 2.45 lakh crore. But finally when the names of the selected companies were announced in May, the production target was slashed to Rs 1.60 lakh crore of which exports would be of the order of Rs 60,000 crore.

The 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 industry has once again taken up the matter of higher incentives with the ministry of electronics and IT without which it fears that targets may not be achieved. The other issue highlighted by the industry recently to the government is related to localisation. Since investments from China is technically not allowed, it will be difficult for companies to set up manufacturing/assembly lines in India for the components like PCBA, battery packs, power adapters, etc.

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