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Explained: What is PLI scheme, and which sectors will be under it?

Apart from inviting foreign companies to set shop in India, the scheme also aims to encourage local companies to set up or expand existing manufacturing units.

Written by Aashish Aryan , Prabha Raghavan , Edited by Explained Desk | New Delhi |
November 8, 2020 4:33:34 am
So far, the scheme has been rolled out for mobile and allied equipment as well as pharmaceutical ingredients and medical devices manufacturing. (Representational Image)

The government aims to expand the ambit of the production-linked incentive (PLI) scheme to include as many as ten more sectors such as food processing and textiles other than the already included mobile phones, allied equipment, pharmaceutical ingredients and medical devices. Apart from cutting down on imports, the PLI scheme also looks to capture the growing demand in the domestic market.

What is the production linked incentive scheme?

In order to boost domestic manufacturing and cut down on import bills, the central government in March this year introduced a scheme that aims to give companies incentives on incremental sales from products manufactured in domestic units. Apart from inviting foreign companies to set shop in India, the scheme also aims to encourage local companies to set up or expand existing manufacturing units.

So far, the scheme has been rolled out for mobile and allied equipment as well as pharmaceutical ingredients and medical devices manufacturing. These sectors are labour intensive and are likely, and the hope is that they would create new jobs for the ballooning employable workforce of India.

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“The objective is really to make India more compliant with our WTO (World Trade Organisation) commitments and also make it non-discriminatory and neutral with respect to domestic sales and exports,” Rajat Kathuria, director and chief executive of policy think-tank Indian Council for Research on International Economic Relations (ICRIER) told The Indian Express.

Why is the production linked scheme needed?

According to experts, the idea of PLI is important as the government cannot continue making investments in these capital intensive sectors as they need longer times for start giving the returns. Instead, what it can do is to invite global companies with adequate capital to set up capacities in India.

“The kind of ramping up of manufacturing that we need requires across the board initiatives, but the government can’t spread itself too thin. Electronics and pharmaceuticals themselves are large sectors, so, at this point, if the government can focus on labour intensive sectors like garments and leather, it would be really helpful,”Biswajit Dhar, trade expert and professor at JawaharLal Nehru University’s Centre for Economic Studies and Planning, said.

Which sectors currently have the PLI scheme?

Around March this year, the central government introduced the PLI scheme for mobile manufacturing as well as pharmaceutical ingredients and medical devices. While the scheme for mobile and allied equipment was notified on April 1, the guidelines for the latter were notified on July 1.

As a part of the PLI scheme for mobile and electronic equipment manufacturing, an incentive of 4-6 per cent is planned for 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.

Similarly, the PLI scheme for pharmaceutical ingredients and medical devices seeks that applicants will commit a certain amount prescribed by the government as investment to build capacities in these areas. 📣 Express Explained is now on Telegram

The government will pay the companies it selects for the scheme a specific proportion of their turnover from making and selling the bulk drugs or medical devices as an incentive over the next few years. The amount of the incentive would decrease as the years go by.

The PLI scheme for bulk drugs focuses on building economies of scale in over 50 critical active pharmaceutical ingredients, including penicillin G, vitamin B1, dexamethasone, meropenem, atorvastatin and aspirin.

Which sectors are likely to see PLI schemes introduced in the near future?

Niti Aayog Vice Chairman Rajiv Kumar had, while speaking at a virtual event on Friday, said that the government was looking to introduce PLI scheme in about nine to ten sectors, apart from the two already existing ones.

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While Kumar did not specify which sectors are likely to be brought under the ambit of the PLI scheme in the coming days, reports have suggested that food processing, textiles, leather as well as battery manufacturing are likely candidates.

Like existing PLI schemes, the new sectors could also see the government offering them sops and bonuses for incremental sales done through units both old and new units. However, unlike the previous schemes brought to boost domestic manufacturing, this one aims to give all the sops and benefits only if the companies are able to prove that they had incremental sales every year for the next five years.

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