Rectified PLI scheme attractive for global IT hardware makers: Experts

Union Cabinet last week approved the modified PLI Scheme for IT Hardware with more than doubling budgetary outlay to Rs 17,000 cr compared to the previous provision of Rs 7,325 cr

The government’s move to revise the IT hardware production-linked incentive (PLI) scheme with more flexible options for manufacturers is likely to increase collaborations and investments in the production of laptops, tablets, all-in-one PCs, servers, and edge computing devices, say experts.

The Union Cabinet last week approved the modified PLI Scheme for IT Hardware with more than doubling budgetary outlay to Rs 17,000 crore compared to the previous provision of Rs 7,325 crore. 

Above all, the average incentive for the domestic manufacturing of IT hardware products has been increased to around 5 per cent of incremental sales from an earlier 2 per cent. This can go up to 9 per cent for localised production of components of the products. The tenure of the scheme is also extended to six years from four years announced in 2021. 

“This will make investments more flexible for companies, allowing them to even include investments made by suppliers and contract manufacturers. Companies can also gain additional incentives of 3 to 4 per cent by procuring domestically manufactured goods. While earlier the industry viewed the scheme guidelines as rigid, these upgraded provisions will further give rise to increased collaborations and attract private sector participation,” Neeraj Bansal, Co-Head & COO - India Global, KPMG in India.

The scheme, which was first announced in 2021, received a tepid response from the industry contrary to the PLI scheme for smartphone manufacturing. This was mainly due to lower incentives and a slump in demand after a boom during the pandemic. Only two of the 14 firms that applied for the benefits of the scheme could meet the targets required to apply for the scheme in the first year. 

“Global supply chain disruptions and inadequate sops were a few reasons for the limited progress in meeting the set targets of PLI 1.0. Increasing flexibility of the scheme’s guidelines and increasing incentive percentage along with the total initial outlay were some of the industry suggestions to improve the overall impact of the scheme. Additionally, there was an ambiguity in the disbursement of funds under the PLI schemes for all beneficiaries,” Bansal said.  

The overall disbursements under the first version of the PLI scheme were nearly Rs 2,800 crore until March 2023, which is around 1.4 per cent of the total outlay. The government is expecting an investment of over Rs 2,430 crore in this sector over the next six years.

The modified version of the scheme will allow the original equipment manufacturers (OEMs) to apply for incentives in the scheme anytime in the next three years. The base year for comparing the incremental sales will be 2022-23, but the companies will also be able to apply anytime in the next three years, giving them room to choose their base year, a government official said.

Several industry stakeholders have welcomed the modified version of the scheme, though some are awaiting the official scheme document to be released.

“The PLI Scheme 2.0 will accelerate the domestic IT Hardware manufacturing ecosystem in India and enable businesses to grow beyond regional markets. It will enhance India’s position as a global technology hub for companies to drive India-designed IP and explore new growth avenues. Following the PLI Scheme’s success in establishing a robust, globally recognized foundation for smartphone manufacture, PLI 2.0 will strengthen India’s electronic and IT hardware industry further and its presence in the global value chain,” said Rajen Vagadia, VP, of Qualcomm India Pvt Ltd & President, Qualcomm India, and SAARC.

The scheme has introduced a new category of hybrid manufacturers, considering the diversified global supply chains. The budget therefore will be divided into three categories of domestic, global, and hybrid. It will also have additional incentives for the localisation of certain optional items.

Cap on maximum incentive for global companies will be Rs 4,500 crore, while those who fall under the hybrid category may get a maximum incentive of Rs 2,250 crore. For domestic companies, there will be a cap of Rs 500 crore. As per the government’s presentation to the industry stakeholders, the number of eligible beneficiaries will be two from the global category, five from the hybrid, and nine from the domestic category.

Shailendra Katyal, Managing Director of Lenovo India said, “While we are yet to make a decision on Lenovo’s plans to leverage PLI 2.0, it offers us the opportunity to consider increasing our PC production capacity and contributing to India’s export capabilities.”

Katyal said “We made significant strides with the previously existing PLI program - starting with self-reliance to domestic value addition, producing components and sub-assemblies, and setting our sights on exports. We have come a long way. In fact, our Motorola smartphones business was one of the first ones to commit to the PLI scheme. 100 per cent of Motorola’s smartphones are made in India and almost 30-40 per cent are exported.” He added that the new scheme is likely to bolster the Indian PC market by increasing local manufacturing of laptops and other PCs.