Top electronic manufacturers want PLI targets revised due to supply chain crisis, COVID-19

Electronics manufacturers including Dell, HP, Foxconn, Wistron, Samsung, and others, have reached out to the ministry of electronics and IT through separate meetings calling for targets in the upcoming production-linked incentive (PLI) scheme for hardware to be revised or timelines extended.

The companies said that applicants might be discouraged from taking up the scheme and investing in the country without the proposed changes. Additionally, these changes are also needed so that mobile phone manufacturers avoid a situation they found themselves in, with only one of 16 handset companies achieving the target for FY21 even after making timely investments.

The companies have asked the government to keep in mind India’s coronavirus crisis and the chip crisis that has caused a global supply chain issue before setting ambitious output timelines for making electronic devices, according to people familiar with the matter.

“The government conceptualized PLI in the pre-Covid era… but now there is a serious need to relook the scheme. According to Economic Times, the target should be revised, or instead of four years, we should be given five years to qualify for incentives,” said Nitin Kunkolienker, president of the Manufacturers’ Association for Information Technology.

He explained that the PLI is a two-way street. The government and the industry are involved. However, the larger beneficiary would be the government, with 60% of the gains through foreign exchange, employment, tax and non-tax revenue, economic activity, and social sector benefits.

“The idea is not to prove that industry is failing to achieve; the idea is to prove that the government ensures the industry succeeds in leading this revolution,” he said.

The success rate for companies approved to make mobile phones in October was atrocious as all, but one of the first batches of 16 failed to meet their production targets for the first year ended March 31, 2021.

Apart from South Korea’s tech giant, Samsung, the other companies have been asking the ministry to declare FY21 as a zero year because the setting up of production lines was delayed due to Covid-19-led restrictions.

Other industry associations have also put forward the industry’s concerns, but the final decision on the matter rests with an empowered committee.

The IT ministry notified the scheme for tablets, laptops, servers, and PCs in March, offering incentives worth Rs 7,325 crore to be laid out over four years to 10 domestic companies and five global companies.

The guidelines, as per a report by Economic Times, are that “foreign companies must invest Rs 500 crore and achieve incremental sales of Rs 1,000 crore in the first year, Rs 2,500 crore in the second, Rs 5,000 crore in the third, and Rs 10,000 crore in the last year. For domestic firms, the investment target is Rs 20 crore, while the incremental sales targets are Rs 50 crore, Rs 100 crore, Rs 200 crore, and Rs 300 crore in four successive years.”

In the second year, when companies must start assembling printed circuit boards in India, the government also set a value addition criterion. In the third year, the companies must add battery packs, and in the following year, the manufacturing of power adaptors or cabinets/chassis/enclosures must be localized.

The companies will be rewarded with an incentive of 1%-4% on incremental sales over the base year FY20 upon meeting all these criteria. The last date for applications was April 31.

According to International Data Corporation, India’s market for laptops was about 7.5 million units in 2019-20, valued at Rs 33,950 crore, while for tablets it was 2.4 million units valued at Rs 3,500 crore. The market for servers was 200,000 units worth Rs 9,100 crore. Imports were used to meet around 90% of this demand.

“India’s personal computer penetration at 15 per 1,000 people is significantly lower compared to the US (784 for 1,000 people) and China (41 per 1,000 people), and thus presents significant growth opportunities,” according to the official scheme document. Techno Sports

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