The government is readying a Rs 45,000-crore fund in an aggressive push to ensure big companies such as Apple, Samsung, Huawei, Oppo, and Vivo, as contract manufacturers like Foxconn and Wistron, bring their global supply chains to India and make the country an electronics manufacturing hub in the next 5 years.
Out of the Rs 45,000-crore fund, about Rs 41,000 crore would be disbursed to companies based on a production-linked incentive (PLI) criteria, while the remaining Rs 4000 crore would be offered under a proposed capital subsidy, or reimbursement, scheme. This proposed scheme will replace the popular Modified Special Incentive Package Scheme (M-SIPS).
The government expects the PLI scheme to generate over 2 lakh jobs, exports of over Rs 5 lakh crore, and direct tax revenue of close to Rs 5000 crore, over a period of 5 years. The disbursement mechanism of the PLI scheme would be firmed up during inter-ministerial consultations. It would most likely be similar to the Duty Credit Scrip Scheme under the current Merchandise Exports from India Scheme (MEIS), which is being wound down by March 31, 2020.
The government is trying to ensure that the new policy is compliant with World Trade Organization guidelines and does not directly link the support to exports. New Delhi, however, wants to put in tough qualification criteria to ensure that the funds are not used by those who manufacture devices only for the local market.
Given the imminent withdrawal of MEIS and limited relief provided by the proposed Remission of Duties or Taxes on Export Products (RoDTEP) in the electronics sector, there is a need to address manufacturing disabilities vis-à-vis China and Vietnam. According to various industry studies, the policy support in Vietnam renders India uncompetitive by 10–12 percentage points and the disability of India compared to China lies between 19 percent and 23 percent.
To counter this, the PLI scheme is expected to extend an incentive of 5–8 percent on incremental sales of goods manufactured in India and covered under target segments, which the government will notify. MEIS offers 4 percent duty credit scrips. Companies have been demanding more to encourage them to make India their manufacturing hubs.
Eligibility of companies would be subject to thresholds of incremental employment generation, incremental investment, and incremental sales of manufactured goods, in order to maximize exports and value-addition in India.
The PLI scheme will open for a period of 3 months initially, inviting applications. However, the disbursement of incentive for the approved applicants would continue for a period of 5 years, based on the response from the industry. An empowered committee comprising secretaries of revenue, expenditure, economic affairs, DPIIT, MeitY, and DGFT will monitor the implementation and allotment of funds. Also, a project management agency will assist the empowered committee.
The second scheme – to replace M-SIPS – will be open for application for 3 years. This will have an incentive of 25 percent on capital investments on plant, machinery, and equipment, and will be provided to industrial units making investment for manufacturing of electronic components and sub-assemblies in specified categories. M-SIPs offer 20 percent and 25 percent reimbursements, depending on whether the plant is located in an SEZ or not.