This bold initiative is poised to propel India toward self-reliance in the vital electronics supply chain, attracting both domestic and global investments. With the goal of creating a robust ecosystem for cutting-edge component manufacturing, the scheme promises to drive innovation, boost economic growth and enhance the country’s competitiveness in global supply chains.
The Production-Linked Incentive (PLI) schemes have traditionally focused on driving incremental sales of domestically manufactured goods, with the primary objective of boosting local production and reducing dependence on imports. While this approach has made significant progress, it has not fully addressed some of the key challenges facing India’s manufacturing sector. Key issues like limited technological development and gaps in infrastructure still remain, which hold back the sector’s long-term growth potential.
Diving deeper into the details of the scheme:
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- The scheme targets a wide range of critical segments within the electronics manufacturing ecosystem, including sub-assemblies like display and camera modules, bare components such as non-SMD passive components, electro-mechanical parts, multi-layer printed circuit boards, and Li-ion cells.
- Additionally, it offers hybrid (combination of both turnover and capital) subsidy model for specific bare components like high-density interconnects and SMD passive components.
- To further bolster the sector, the scheme offers capital expenditure incentives for the parts and components involved in the production of these sub-assemblies and bare components, fostering a more integrated and competitive manufacturing ecosystem.
The unique proposition of this scheme is a blend of Turnover based/Capital-Linked/hybrid (combination of both turnover and capital) subsidy model, which has drawn inspiration from traditional initiatives like M-SIPS and SPECS. This innovative approach aims to attract greater investment and cultivate a robust manufacturing ecosystem by offering incentives not only for production/turnover but also for capital expenditure.
By linking subsidies to the capital investments made by companies, this model encourages investments in advanced technologies and infrastructure. In doing so, it helps position Indian manufacturers to be more competitive on the global stage, driving long-term growth and innovation within the sector.
While the detailed guidelines of the scheme are awaited, it is expected that unlike other Central Government incentive schemes, this scheme is likely to emphasize on the employment generation and likely to offer extra incentives for fulfilling employment criteria to encourage job creation in the country.
Further, it is expected that the turnover incentives for Sub-assembly category may range upto 5%; and for Bare Components category may range upto 10%, in order to compensate part of the disabilities arising on account of higher manufacturing costs in India. Further the capex incentive is likely to be 25% (same as provided in MSIPS and SPECS scheme). Also, given this is an extension of earlier schemes, it is likely that the benefit under this scheme will only be available for investment not considered for incentives in earlier schemes.
In India, the growth of electronics industry has been nothing short of remarkable, with domestic production of electronic goods rising from ₹1.90 lakh crore in FY 2014-15 to ₹9.52 lakh crore in FY 2023-24, growing at a compound annual growth rate (CAGR) of over 17%. Exports have also surged, increasing from ₹0.38 lakh crore in FY 2014-15 to ₹2.41 lakh crore in FY 2023-24, reflecting a CAGR of more than 20%. This scheme is set to further elevate this momentum by strengthening India’s electronics supply chain and fostering greater value addition across the sector.
—The authors; Saurabh Agarwal and Parul Nagpal, are Tax Partners at EY India. The views are personal.
(Edited by : Unnikrishnan)
