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Introduction to Production Linked Incentive (PLI) scheme & its implications for telecom equipment sector

Srinivasa Sharan
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Introduction to Production Linked Incentive (PLI) scheme & its implications for telecom equipment sector

Production Linked Incentive (PLI) Schemes were initiated by the Government of India (GoI) in March 2020 to reduce the country’s reliance on imports, specifically, Chinese imports in a few industries and sectors.   

The objective of the PLI Scheme is to increase domestic production. Hence, it kicked off with the drugs sector, where 53 bulk drugs were eligible for a PLI of nearly Rs 7,000 crore. According to recent reports, PLI Scheme announcements may trigger investments of over Rs 50,000 crore in the medium to long-term.    

  The government has announced PLI Schemes for a total of ten sectors. Some of these include:  

- Automobile & auto components for Rs 57,042 crore  

- Mobile telecom for Rs 40,951 crore   

- Advance cell chemistry battery-Rs 18,100 crore   

- Technology products for Rs 5,000 crore  

- Textile products-Rs 10,683 crore   

- Food products for Rs 10,900 crore  

- Active pharmaceutical ingredients (APIs) for the pharma sector-Rs 10,500 crore  

- Medical devices sector-Rs 3,420 crore. 

While the tenure of the PLI scheme for mobile handsets will be from FY2021-FY 2026; for other sectors, it would be from FY 2022-FY2027.  

Apart from supporting the domestic industry, PLI Schemes would also encourage global firms with the capital to set up capacity as well as receive benefits for producing in India. A few companies that have recently applied under PLI Scheme include Apple’s contract manufacturers, Foxconn Hon Hai, Wistron & Pegatron, in addition to South Korean manufacturer-Samsung.  

Some private analysts believe that 1.7 per cent of the GDP growth could get added to the economic output by FY2027. The bulk of this output will be exported, which could help in reducing the trade deficit by $55 billion over FY2022-FY 2027 period.  

Meanwhile, the government announced a new Production Linked Incentive (PLI) Scheme for the telecom equipment industry via a Union Cabinet notification on February 17. The policy covers core transmission equipment, 4G/5G next-generation radio access network & wireless equipment, access and customer premises equipment, internet of things-access devices, other wireless equipment along with, enterprise equipment like switches, routers, etc. The scheme will become operational from April 1, 2021. Ministry of Communication & Information Technology has also stated that the eligibility for the scheme will be subject to achieving a minimum threshold of cumulative investment and incremental sales of manufactured goods.   

The scheme will offer annual cash incentives of 4 to 7 per cent of the increase in sales of domestically manufactured equipment keeping FY2019-FY2020 as the base year. It will also help offset the import of telecom equipment worth more than Rs 50,000 crore, which are due to occur over the next 5 years.  The announcement was well received by the industry associations. “We congratulate the government on the recently approved PLI for telecom equipment manufacturing. Initiatives like these will help India position itself as a manufacturing hub of the world. This will open up many opportunities to manufacturers. India will see companies moving their supply chains here and truly become Atmanirbhar. At the same time, it is also important to take steps towards moving component manufacturing to India,” said George Paul, Chief Executive Officer of the industry body-Manufacturers’ Association for Information Technology (MAIT).  

In terms of the companies that would benefit from this over the next few years include, Tejas Networks Ltd (on which DSIJ did research coverage), Shyam Telecom, Dixon Technologies, D-Link India, and Sterling Technologies.  

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