PLI 2.0 Scheme For IT Hardware

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The recently announced India’s Production Linked Incentive (PLI) scheme 2.0 for IT hardware has been designed to propel domestic manufacturing capabilities. From hybrid company categories to increased incentives, here’s a simplified version of the scheme highlighting the crucial elements.

The Union Cabinet recently sanctioned the Production Linked Incentive (PLI) scheme 2.0 for IT hardware with a budgetary outlay of ₹170 billion. Devised by the Ministry of Electronics & IT (MeitY), with the aim to push domestic manufacturing capability, the tenure of this scheme will be six years.

This time, a new category, called hybrid company, has been introduced. It allows two companies (one global and one domestic) to participate.

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Application process for PLI 2.0 (Credit: ICEA, MeitY)
Application process for PLI 2.0 (Credit: ICEA, MeitY)

The hybrid category provides flexibility for companies to position themselves based on their incremental sales and investment targets. For instance, a global company planning to invest enough to avail incentives as high as ₹45 billion can opt for the global category. But if they face difficulties in meeting the investment target, they can choose different arrangements as per their convenience.

Table 1PLI Calculation for global companies
  Year 1 Year 2 Year 3 Year 4 Year 5 Year 6  
Incentive (%) and average incentive (%) 4.2 4.038 3.781 4.889 5.308 5.58 5.04
Incremental sales threshold 1000 2500 5000 10000 12000 15000 45500
Estimated sales 1500 3750 7500 15000 18000 22500 68250
PLI amount in tens of millions (est sales*Inc%) 63 151.41 283.57 733.31 955.44 1255.5 3442

 

Table 2 PLI calculation for domestic companies
  Year 1 Year 2 Year 3 Year 4 Year 5 Year 6  
Incentive (%) and average incentive (%) 4.2 4.03 3.78 4.88 5.3 5.58 5.04
Incremental sales threshold 500 1250 2500 5000 6000 7500 22750
Estimated sales 750 1875 3750 7500 9000 11250 34125
PLI amount in tens of millions (est sales*Inc%) 31.5 75.7 141.78 366.66 477.72 627.75 1721

 

Table 3 PLI calculation for hybrid companies
  Year 1 Year 2 Year 3 Year 4 Year 5 Year 6  
Incentive (%) and average incentive (%) 4.2 4.03 3.78 4.88 5.3 5.58 5.04
Incremental sales threshold 500 1250 2500 5000 6000 7500 22750
Estimated sales 750 1875 3750 7500 9000 11250 34125
PLI amount in tens of millions (est sales*Inc%) 31.5 75.7 141.78 366.66 477.72 627.75 1721

 

Some other highlights of the scheme are:

  • A 45-day window is provided for the selection of beneficiaries under PLI 2.0.
  • The government expects the average incentive to rise to around 5%, up from the existing 2.2% (with PLI 1.0).
  • Applicants will receive an extra optional bonus of 3% if they use components, sub-systems, or inputs that are manufactured and designed in India.
  • While the scheme is set to be implemented from July 1, 2023, applicants may choose to start in the year 2024 or 2025 as well.
  • The base year 2022-23/2023-24/2024-25 will be considered for the computation of incremental sales, as per applicability.
  1. The budget allocated per category is fixed, which means the number of players will be decided based on the budget available and the PLI quoted by the applicants.
    • The maximum incentive cap is as follows:

      • ₹ 45 billion for global companies
      • ₹ 22.5 billion for hybrid (global/domestic) companies
      • ₹ 5 billion for domestic companies
  2. PLI will be disbursed only if the applicants fulfill the eligibility criteria such as thresholds of incremental investment, net incremental sales, etc.

• Interestingly, PLI 1.0 applicants will be allowed to apply under PLI 2.0. They can choose to:

    • Continue in the existing PLI scheme.
    • Migrate to the new scheme and resume from the year they were in the earlier scheme (with their earlier investment counted).
    • Participate as new applicants for six years (without their earlier investment being counted).
  • PLI 1.0 conditions regarding sales thresholds for the global/domestic category will remain the same for the first four years.
  • The annual PLI will be calculated as the ceiling, based on net incremental sales multiplied by the incentive.
  • If there are overachievers in a particular year, they will receive PLI above the annual ceiling only if some players underperform.
  • In the absence of overachievers in a specific year, the overall savings from that year will be carried forward to the next year to provide PLI to overachievers.
  • The government has provided flexibility in the investment requirements. Companies can spread the investment over six years as per their choice. If they fall short of meeting annual investment thresholds, it is acceptable as long as the overall investment targets remain intact.
  • Companies investing in contract manufacturers will also be eligible for this scheme if the contractors are producing exclusively for a single company.

3. At the time of application,

  • The applicant has to provide an estimated PLI amount. The scheme considers that amount as the ‘ceiling’ for that year.
  • To maintain ‘projection discipline,’ the ministry has introduced a penalty provision in case of a more than 25% difference between the estimated and actual PLI amounts for any year (25-50% difference: 5% penalty, >50% difference: 10% penalty).
    While the government is leaving no stone unturned to make India a manufacturing hub for IT hardware, the observations from the implementation of the updated scheme will decide the future course of action for both the industry as well as the policymakers.

Vaishali Yadav muses upon clouds, security, sustainability, integration, smartness, machines and learning—both trivially and technologically.

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