Why PLI scheme in IT hardware sector hasn't taken off despite laptop demand

Imports shoot up as local production remains way short of expectations

The government’s Aatmanirbhar plan for IT hardware through its Production Linked Incentive (PLI) scheme — intended to give a big push to local production and reduce imports — has hit a logjam.

On the one hand, demand for laptops and tablets have hit the roof as companies, especially in the IT sector, and consumers continue to work from home. Lack of local production is driving imports to new levels.

Yet, only four of the 14 eligible players for the PLI scheme in IT hardware in the first year of operations have succeeded in meeting their production targets and will receive incentives. At least one global player is already planning to move out of the scheme after the second year because it feels the PLI scheme is not attractive enough.

There is no duty on imports on laptops and IT products as India is part of a WTO agreement that makes imports pretty attractive .

According to data, imports of laptops and tablets have gone up sharply by over 53 per cent from $5.2 billion in FY21 to $8.0 billion in FY22.

A top PC manufacturer said that enterprises which buy customised, configured PCs face a waiting list of between six  to twelve weeks for delivery.

“With the chip shortage and the fact that India accounts for only 1-3 per cent of most global PC companies’ sales, we are much behind in the quota and have to wait longer,” said a senior executive of a top global PC company.    

  

More importantly, China dominates imports, accounting for over 72 per cent of all laptop and tablets imported in the country in value, virtually at the same level as in the last two years, despite a higher import bill.

There are also concerns that non-tariff barriers, such as making   imports from China difficult, could only increase the problem.   

According to International Data Corporation estimates, the total Indian PC and tablet market for 2021 was $10.7 billion. Industry estimates suggest that 75 per cent of it is imported.   

Talks are on to revamp the PLI scheme. The Ministry of Electronics and Information Technology has been meeting members of NITI  Aayog and stakeholders to work out the revamp.

The Manufacturers Association of Information Technology (MAIT), the apex IT hardware association, has told the government that it would like the duration of the scheme to be doubled  to eight years and the  incentive increased from 1-4 per cent (average of 2 per cent)  to 6.5 per cent for PCs and 8.5 per cent for servers. It also wants a separate scheme for Indian brands in the MSME sector.

If this proposal is accepted, it will cost the government a lot of money. Analysis by the India Cellular & Electronics Association show that the current allocation of IT hardware PLI which was Rs 7,350 crore needs to be increased three-fold to around Rs 21,000-22,000 crore. 

And this figure is based on the association’s  more moderate demand to increase the incentive to 5 per cent for five years. MAIT’s recommendation could peg the allocation far higher.

MAIT has also argued that the incentive targets (Rs 500 crore from global companies and Rs 20 crore from domestic companies) should be decided based on inputs received from the eligible companies and that the money that they have put into the PLI 1 (exiting scheme) should be included. 

The reason is that the type and amount of equipment will vary from company to company based on existing investments and future localisation plans and consequently these should be taken into consideration.

MAIT is also pushing for more products such as storage devices and data centre switches to be added to the list of those that are already eligible for the scheme.

It has also suggested a special incentive scheme for MSME Indian brands as part of the PLI for domestic players. 

This entails reserving 5 per cent of the allocation for domestic players; a sharp reduction in the investment criterion (it is Rs 20 crore for domestic players); an incentive of 7.5 per cent over five years for laptop makers; and a 10 per cent increase year on year over existing base sales (FY22) for eligibility of incentives.

MAIT believes that new entrants should be eligible provided they have a cumulative revenue of Rs 5 crore and have produced 2500 units in the last two years.