New Delhi: The government can relax the production-related incentive scheme (PLI) for IT hardware.
It has proposed to increase the scheme’s financial expenditure by 2.5 times to about Rs 19,000 crore and double the incentive rates to help multinational companies such as Dellhorsepower, Apple, Samsung and Asus to ramp up production in the country.
According to a draft of the revised scheme — PLI for IT hardware 2.0 – expected to be disseminated to key stakeholders for feedback, the restructured scheme will now provide incentives of 4-5.75% over five years, up from 1-4% over a four-year term at present, officials said who were aware of the ET issue. The financial outlay will be about Rs 19,000 crore from Rs 7,350 crore, they said.
The draft of the revised scheme will be discussed with the business community, after which it will be submitted to the cabinet for approval. All companies selected under the existing scheme may participate in PLI 2.0.
“Average incentives for businesses have increased from 2.21% to 5.34% in five years,” an official told ET.
Same localization scheme
However, the conditions for taking advantage of the scheme’s benefits remain the same, including the localization scheme.
Sources said the industry had asked the government to give them incentives for up to eight years to ensure smaller companies have a global competitive advantage. They also sought incentives on the order of 7-8% to improve manufacturing viability in India, a second official added.
According to the design of the reworked scheme, in order to reap additional benefits, companies must include localization of components.
For example, in order to receive a 4% benefit in the first year of the scheme, companies must have a domestically printed PCB mounting (PCBA) line.
In the second year, in addition to PCBA, batteries must also be purchased locally, while in the third year, power modules have been added as a local component.
In the fourth and fifth years, four components must be sourced locally, including PCBA, battery, power module and cabinet or chassis, to take advantage of 5.75% incentives.
“Incentives increase as companies incorporate local components into production,” said an official.
More for local cos
Laptops, tablets, all-in-one PCs and servers are covered by the scheme.
Global businesses can take advantage of laptops priced at Rs 30,000 and above, and tablets priced at Rs 15,000 and above. There is no plate for all-in-one PCs and servers. Domestic companies receive premiums for all products, regardless of their invoice value.
Global companies have to invest Rs 50 crore in the first year and have incremental production worth Rs 1,000 crore to take advantage of it. For local businesses, the investment amount is Rs 4 crore and incremental production should be worth Rs 50 crore.
Incremental investment and production targets are increasing every year under the scheme, which is likely to start April 1 next year. The fiscal year 2022-23 will be taken into account for the calculation of incremental sales.
The IT hardware PLI, which started April 1 last year, failed to take off and only one company, Dell, managed to meet production and investment targets in its first year. A total of 19 companies had applied under the scheme, including Dell, WistronFlextronics and Rising Star (Foxconn).
The government on Wednesday amended the stimulus schedule of Rs 76,000 crore for semiconductors and display manufacturing units, offering to give 50 percent of project costs to all categories of factories as it looked to global players such as Intel to pursue a to establish a production base. in India to reduce dependence on imports.
First hitches
Hardware manufacturers have blamed the scheme’s low incentive structure for its failure, as the median incentive rate of 2.5% does not justify moving units from China or Vietnam for hardware products.
“The average incentive that applicants receive under the (current) electronics hardware PLI is very low. The second factor for poor performance is that there are no import duties on electronic hardware. So the players who have signed up will have to compete globally on cost and quality,” said another official.
An ecosystem of IT Hardware Manufacturing is required because PCs or laptops are a major contributor to the country’s $200 billion software industry, and imposing tariff and non-tariff barriers on IT hardware is not possible.
Currently, 70-80% of IT hardware products are imported.
While the incentives under the hardware PLI Schemes were indeed low, exports had not improved due to reduced global demand, said an applicant for the scheme.
“The demand for all-in-one personal computers, for example, mainly comes from developing countries or high-end labs. But the (economic) situation is such that costs have to be kept low due to fierce competition. (More) incentives will help us compete better at scale,” a senior executive at a company that has applied for incentives under the hardware PLI scheme told ET.