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Explained: What is the production linked incentive scheme for electronics manufacturers?

Unlike the previous electronics manufacturing schemes, there has been considerable interest in the PLI scheme so far. Here's why

Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: July 31, 2020 7:25:27 am
South Korean company Samsung Electronics, Taiwan’s Pegatron, and Singapore’s Flex are in the final stages of discussions to either set up new units or expand the existing units to avail benefits under the scheme. File/Reuters

Global electronics giants such as Samsung, Pegatron, Flex, and Foxconn among others are looking to either set shop or expand their presence in India. These companies are in final stages of negotiations to benefit from the Ministry of Electronics and Information Technology’s (MeitY) production linked incentive (PLI) scheme for making mobile phones and certain other specified electronic components.

What is the PLI scheme?

As a part of the National Policy on Electronics, the IT ministry had on April 1 notified a scheme which would give incentives of 4-6 per cent to electronics companies which manufacture mobile phones and other electronic components such as transistors, diodes, thyristors, resistors, capacitors and nano-electronic components such as micro electromechanical systems.

According to the scheme, companies that make mobile phones which sell for Rs 15,000 or more will get an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India. In the same category, companies which are owned by Indian nationals and make such mobile phones, the incentive has been kept at Rs 200 crore for the next four years.

The scheme, according to officials, will on one hand attract big foreign investment in the sector, while also encouraging domestic mobile phone makers to expand their units and presence in India.

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What is the tenure of the scheme?

The PLI scheme will be active for five years with financial year (FY) 2019-20 considered as the base year for calculation of incentives. This means that all investments and incremental sales registered after FY20 shall be taken into account while computing the incentive to be given to each company.

For the first year, the total incentive to be given has been capped at Rs 5,334 crore, while for the second and third year it has been kept at Rs 8,064 and Rs 8,425 crore, respectively. In the fourth year, the incentive will be hiked substantially to Rs 11,488 crore, while in the fifth and final year, the incentive to be distributed has been capped at Rs 7,640 crore. The total incentives over five years has thus been kept at Rs 40,951 crore.

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Which companies and what kind of investments will be considered?

All electronic manufacturing companies which are either Indian or have a registered unit in India will be eligible to apply for the scheme. These companies can either create a new unit or seek incentives for their existing units from one or more locations in India.

Any additional expenditure incurred by companies on plant, machinery, equipment, research and development and transfer of technology for manufacture of mobile phones and related electronic items will be eligible for the incentive scheme.

However, all investment done by companies on land and buildings for the project will not be considered for any incentives or determine eligibility of the scheme.

Which companies have shown interest so far?

Unlike the previous electronics manufacturing schemes, there has been considerable interest in the PLI scheme so far. According to government officials, South Korean company Samsung Electronics, Taiwan’s Pegatron, and Singapore’s Flex are in the final stages of discussions to either set up new units or expand the existing units to avail benefits under the scheme.

Apart from that, companies such as LG India, which already have manufacturing units in India have also shown interest in the scheme. In the budget-category phone segment also, companies such as Lava, Dixon, and Karbonn have applied, government officials said.

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