PLI Scheme – an opportunity in the face of adversity, Auto News, ET Auto
With the aim of removing sectoral handicaps, creating economies of scale, improving exports, creating a robust component ecosystem and creating jobs, the leading government announced PLI programs for 13 sectors to act as a growth catalyst for the manufacturing sector. While nine schemes have already been approved at the cabinet, four sectors await their turn – Automobiles and automotive components, special steels, textile products: MMF segment and technical textiles and advanced chemistry cell battery (ACC).
What makes PLI programs attractive to both the country and businesses is the fact that they aim to develop key sectors, promote local added value and generate employment opportunities, thereby placing the India on the global manufacturing map. While most programs require that national value addition plans be declared, since the incentive under PLI programs is not tied to exports / value addition, the fabric of PLI programs is broadly compliant. at the WTO.
Since each industry operates on a predefined financial incentive limit, there are some challenges associated with the same – companies have to compete against each other to claim this benefit, and secondly, no additional benefit is given to a company that exceeds its targets. and, therefore, these companies have no incentive to exceed their projections. Another issue which, although at the same time (and to a small extent) is taken care of by the government by examining exemptions / concessions, may not be useful when cost comparisons are made between imported and locally produced products. .
The latest regime introduced for “white goods” applies to air conditioners and LED lights, which came into effect from fiscal year 2021-22 to fiscal year 2028-29. The sector has so far been dominated by imports from Southeast Asian countries with players assembling units in India.
The program extends an incentive of 4% to 6% on additional sales (net of tax) in the base year of products made in India and covered by target segments, to eligible companies, for a period of five ( 5) years after the base year and one year of gestation period.~
Applications for the program with a financial limit of INR 6,238 are open between June 15, 2021 and September 15, 2021. Program guidelines provide that preference under the program will be given to actors who manufacture components or sub-components. sets which are not made in India with sufficient capacity. the plan guidelines clarify what investments will be included for plan purposes. As per the guidelines, machinery and equipment must be purchased / rented on behalf of the applicant. Expenses for consumables and raw materials used in manufacturing are not considered an investment. Capital expenditure incurred for R&D can be included, however, revenue expenditure should not be included in the same. What is also not covered is investment in land and construction (including building factories or construction).
the the guidelines also restrict the use of used, second-hand and refurbished plant, machinery, equipment and utilities to the manufacture of the qualifying product. Although the restrictions seem logical given that the main goal of the program is to increase investment in India, given the effect the pandemic has had on businesses and it has no expiration date , it can be a bit difficult for companies to organize the investment at this time.
Being a limited fund program, the value of the incentives is capped at five times the cumulative investment threshold of the previous year for air conditioners and 6 times for target LED segments. Among other conditions, the benefit of the program is not available for simple assemblies or for value-added resellers, clearly demonstrating that the goal is to encourage manufacturing in India.
Being a limited fund program, the value of the incentives is capped at five times the cumulative investment threshold of the previous year for air conditioners and 6 times for target LED segments. Among other conditions, the benefit of the program is not available for simple assemblies or for value-added resellers, clearly demonstrating that the goal is to encourage manufacturing in India.~
Given the limited financial incentives and window for submitting applications, it is imperative that businesses act quickly and assess their eligibility to file the application. How much investment in the manufacturing sector will the program actually generate is something that remains to be seen, given that the sector has enormous potential.
About the author: Ankita Bhasin, senior partner with input from Rajat Bose, partner at the law firm Shardul Amarchand Mangaldas & Co.
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