Government to Provide New Incentives for PLI Scheme for Hardware

Next month, the Ministry of Electronics and IT (MeitY) will develop a revised incentive structure for the Production Linked Incentive (PLI) scheme for IT hardware to scale up domestic production and make it attractive for global players to relocate units from China.

The idea is to offer higher incentives and engage in fresh consultations with the industry so that a few prominent players who have not participated in the scheme can develop their India manufacturing plans.

The Success of PLI Scheme for Hardware

Global players like HP and Dell, which already had some production units in India, have sent applications for the PLI IT hardware scheme since its announcement in February 2021. However, this scheme has not been as successful as the smartphone PLI scheme.

For instance, the smartphone’s quarterly production under PLI averages Rs.67,200 crore against the quarterly estimate of Rs.43,000 crore and attracted an investment of Rs.2,600 crore. But the IT hardware’s quarterly average production is at Rs.500 crore against the estimated Rs.750 crore and attracted investments of Rs.16,500 crore.

Problems With the PLI Scheme for Hardware

There were problems from the start with the IT hardware scheme. When the government announced this scheme on 24 February 2021, the outlay was fixed at Rs.7,350 crore over four years. The government estimated production of up to Rs.3.26 lakh crore, out of which exports were expected to be of the order of Rs.2.45 lakh crore.

On 4 May 2021, the government announced the names of the companies that applied for the scheme, and it slashed the production target to Rs.1.60 lakh crore, of which exports would be Rs.60,000 crore.

Since the incentive structure is based on attaining a minimum threshold of incremental sales over the base year increasing to a maximum limit, the outlay of Rs.7,350 crore for the scheme was cut back by half as companies committed to a lower production target.

The IT hardware manufacturers blamed the low production target on the incentive structure. The incentive works out to an average of 2-2.5% over four years, which does not justify relocating units from China or Vietnam, especially for hardware products where the import duties are nil as they fall under IT products.

The industry executives feel that the ideal incentive structure for IT hardware should be in the range of 7-8%. For companies like HP and Dell, who have participated in the IT hardware PLI scheme, the domestic sales are more attractive than the exports, which is the main driving force for the government behind redesigning the PLI scheme.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in