Testing times for PLI schemes: Covid-related delays put firms in pressure

News: The government had launched the PLI schemes for 15 sectors. However, various companies across IT hardware, telecom products and mobile devices have failed to achieve their investment target and meet their production targets. They missed the deadlines for the first year ended on March 31.

What are the benefits of the PLI Scheme?

Growth in the Indian economy. For example, Apple and Samsung have contributed to a growth of 75% over the previous year in the mobile sector.

Capital Expenditure (CAPEX) recovery in India: As per estimates, 22% of the capital expenditure expected under PLI has started for seven out of the 15 sectors.

Import substitution: For instance, the scheme will reduce India’s import of laptops and tablets (India imports 90% from China). Also, the PLI for advanced chemistry batteries will provide batteries to power electric vehicles in India’s domestic market.

Create six million jobs: More than half of these jobs will come from five sectors — speciality steels, ACs, LEDs, autos and components, and high-tech mobile devices. For example, Apple, with its three vendors, is expected to account for 8% of the total job creation.

In addition, schemes will lead to increased Indian exports. For example, 9 sectors focused on PLI have a lot of export potential.

What were the causes behind the failure to meet the investment target?

The companies could not meet their targets due to the pandemic. There were hit by a huge supply chain disruption in 2021 (especially for chips) and a delay in factory construction among other factors.

Challenges due to ill-defined PLI schemes: For example, initially, PLI Scheme for IT hardware aimed to make India into an export hub (The export target was 75% production value). However, the export target has been reduced to 37%.

In the telecom sector, companies have been impacted by the delay in 5G auctions. Telcos have not given any orders without the auctions.

What are the requests raised by Industries?

The government has amended the PLI for making solar PV modules after requests from the industry players. It has increased allocation. This sector is expected to account for one-fourth of PLI investments across 15 sectors.

The Companies have petitioned the government to double the incentive from 2.5% to 5%. They have also requested to extend the tenure of the scheme from four to eight years because India has no component infrastructure.

The companies have also asked for another year’s extension. Most of the players could not claim incentives in FY 2021-22. The government committee has been constituted to resolve the problem.

Source: The post is based on the article “Testing times for PLI schemes: Covid-related delays put firms in pressure” published in the Business Standard on 02^nd April 2022.