This column provides an update on India’s investment incentive program aimed at increasing domestic and foreign direct investment (FDI) in core manufacturing sectors (14 sectors, as on date), called the Production-Linked Incentives schemes (PLI Schemes). Announced in March 2020, the program provides qualifying companies with lucrative incentives totalling approximately USD 27 billion for investing in the pharmaceuticals, automotive, and specialty steel sectors, among others.
The column outlines the key points of the PLI Schemes that are open/soon expected to open for applications.
Announced by the Indian Government (GOI) to incentivise and promote the manufacturing sector in India, the PLI Schemes have generated tremendous interest from domestic and international entities. Indeed, available spots under the PLI Schemes have been oversubscribed, such as in the pharma sector. The pharma PLI Scheme, one of the earliest ones, has a total budget outlay of approximately USD 2 billion. Nearly 300 applications were submitted under this PLI Scheme, of which 55 were finally selected. Successful applicants include major players like Sun Pharmaceuticals, Dr. Reddy’s Laboratories and Lupin. Similarly, global companies in other sectors have successfully applied including Foxconn and Nokia under the telecom PLI Scheme, and Daikin, Panasonic and Hitachi Johnson under the PLI Scheme for white goods.
Why the interest in the PLI Schemes
The PLI Schemes’ incentives, which are described below, are lucrative. The GOI has set aside a dedicated budget for payment under each PLI Scheme. This makes the likelihood of an eligible applicant (i.e., an applicant selected under the application process, who also then completes the conditions under the Scheme, thus becoming eligible to receive incentives) not receiving the incentives extremely low. Further, operational matters under each PLI Scheme have been entrusted to a dedicated Project Management Agency, appointed by the concerned Ministry or Department. The GOI proposes to have the PLI Schemes periodically reviewed by the concerned Ministry/Department to measure efficacy and monitor their implementation over their term. Finally, the PLI Schemes do not generally affect other subsidies or schemes. So, an entity that benefits under other subsidies or schemes can still participate in a PLI Scheme if it satisfies all conditions pertaining to that PLI Scheme.
International companies with a manufacturing presence in India may benefit from the PLI Schemes in particular, since they can leverage their existing local relationships and practical knowledge of the Indian manufacturing sector to meet the required targets under the relevant PLI Schemes.
What Are the Incentives
As the name indicates, incentives under the PLI Schemes are linked to production. An eligible company that (i) qualifies to participate in a PLI Scheme, and (ii) then meets the prescribed annual and cumulative investment and production and sales targets, will receive financial (cash) incentives from the GOI. The incentives are paid out annually during the PLI Scheme’s term to companies meeting the targets. As an illustration, the steel PLI Scheme has a total incentive outlay of approximately USD 850 million, in the range of 3% - 15% of the sales values, depending on the incentive category. Greater incentives are offered for specialty steel grades, which are not manufactured in India or are manufactured less. The textiles PLI Scheme offers incentives totalling approximately USD 1.4 billion, in the range of 7% - 15%, again depending on the incentive category.
Incentive amounts vary for each sector, and prospective applicants should review the relevant PLI Scheme’s fine print and the corresponding guidelines to determine the calculation methodology for incentives, the conditions and the qualifications.
Applying for PLI Schemes
The PLI Scheme and its guidelines must be read together to ascertain the application window, the application process, the necessary accompanying documentation and other sector-specific conditions. Common conditions for the various PLI Schemes include an incorporated presence in India and varying minimum net worth requirements. There may be additional requirements specific to a sector. For example, the steel PLI Scheme requires the applicant Indian company to carry out ‘end-to-end’ manufacturing (as explained in the PLI Scheme) in India. Companies selected for the steel PLI Scheme must also sign a memorandum of understanding with the Ministry of Steel undertaking to adhere to the commitments made at the time of selection.
PLI Schemes Open/Expected to Open
While the application windows for some earlier-announced PLI Schemes have already closed, the following are the PLI Schemes expected to open and further details of which are awaited:
- Steel - The PLI Scheme was notified on 29 July 2021. The guidelines have been notified on 20 October 2021. The application window is now open and will remain open until 29 March 2022.
- Textiles - The PLI Scheme was notified on 24 Sep 2021. The application window is open until 31 January 2022.
- Drones and drone components - The PLI Scheme was notified on 30 Sep 2021. Detailed guidelines and the announcement of the application window are awaited.
- Semiconductors - The Indian government has also recently announced an incentive scheme for semiconductors, the details of which are awaited.
Investors interested in participating in the PLI Schemes would be well-advised to prepare in advance to apply under these schemes. This would entail a detailed review of the relevant PLI Scheme and accompanying guidelines, ascertaining the application windows, examining the eligibility criteria to apply, and if these are satisfied, then gathering the information and documentation necessary to submit an application to the relevant Ministry by the deadline. Application periods are relatively short (typically 60-90 days from the date of the notice inviting applications). Even if an application is submitted timely, since each PLI Scheme has a pre-set financial incentive budget, the number of successful applicants under a PLI Scheme is limited.
(Written by: Pavitra Iyer)
*This Column is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.
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