PLI SCHEME INCENTIVES FOR WHITE GOODS
Context: Applications from various firms seeking incentives under the Production-linked Incentive (PLI) scheme for white goods, including Air Conditioners and LED Lights, are currently being reviewed. The process is progressing smoothly without any reported delays in the payout of incentives, as per a recent official announcement.
The Department for Promotion of Industry and Internal Trade (DPIIT) has provided investors with a choice between two gestation periods: one extending up to March 2022 (one year) and the other up to March 2023 (two years).
White Goods:
White goods are major household appliances such as stoves, refrigerators, washing machines, and air conditioners, renowned for their durability and long service life.
Originally, these goods were only available in white, which is how they got their name, but nowadays, they come in a multitude of colours while still being referred to as "white goods."
Additionally, the term "white goods" may include white textiles, like linen or cotton, and clear alcoholic beverages in the drinks sector, including vodka and gin.
Brown Goods:
In contrast, brown goods refer to lighter, portable electronic consumer products such as computers, TVs, and radios.
These items focus on providing entertainment, communication, and convenience, incorporating electronic elements to deliver services related to audio, video, or data.
Unlike white goods, brown goods are characterized by their technological features rather than their longevity or essential household functions.
Production-linked Incentive (PLI) Scheme:
The Production Linked Incentive Scheme (PLI) aims to boost in-house manufacturing, encourage the replacement of imports with domestic products, and create job opportunities.
Initiated in March 2020, this scheme was first aimed at three key sectors: Mobile and related Component Manufacturing, Electrical Component Manufacturing, and Medical Devices.
It later broadened to include 14 sectors, such as the automotive industry, pharmaceuticals, specialty steel, among others.
The scheme offers financial rewards to both local and international companies that undertake manufacturing within India, based on a portion of their sales revenue for a duration of up to five years.
Sectors targeted under this scheme comprise mobile manufacturing, pharmaceuticals, electronic gadgets, white goods like air conditioners and LED lights, and drones.
The incentives are determined based on the incremental sales achieved, with some sectors also weighing in sales performance and domestic content over a span of five years.
There's a strong focus on investing in research and development to stay competitive on a global scale.
The PLI scheme has notably succeeded in the smartphone manufacturing domain, leading to a substantial decrease in the trade deficit from a negative USD 3.3 billion in FY 2017-18 to a net export surplus of USD 9.8 billion by FY 2022-23. This change is attributed to reduced imports and heightened exports.
PLI SCHEME FOR WHITE GOODS:
The scheme targets to create a full-fledged component ecosystem for Air Conditioners and LED Lights in India, aiming to make India a significant part of the global supply chains.
Announced by DPIIT in 2021, it is to be implemented across India without restrictions on location or demographics.
Goals include boosting domestic production, attracting investments, overcoming sector challenges, achieving scale, enhancing exports, creating a robust component ecosystem, and job creation.
Offers 4-6% incentives on incremental sales over the 2019-20 base year for both domestic sales and exports, available to qualifying companies for five years.
To be eligible, companies must be registered in India as per the Company Act, 2013, and meet specific sales and investment growth criteria.
Companies already receiving PLI benefits for the same products from other government schemes are ineligible.
The scheme's duration is from FY 2021-22 to FY 2028-29
Key Benefits of the PLI Scheme:
Enhances Local Production: Encourages local production of white goods through financial incentives, decreasing import dependence and strengthening India's manufacturing base.
Draws Investments: Seeks to attract substantial investments from both national and international firms, spurring economic growth and employment creation.
Spurs Economic Growth: Boosts the economy by increasing local manufacturing and investment, potentially raising GDP and enhancing living standards.
Encourages Exports: Incentivizes exports, aiding Indian firms in entering global markets, increasing export earnings, and improving trade balance.
Promotes R&D and Innovation: Necessitates investment in research and development for incentive eligibility, fostering technology advancements, innovation, and skill enhancement in the local industry.
Generates Employment: Expected to create jobs at various skill levels due to manufacturing sector expansion, aiding in poverty alleviation and socio-economic progress.
Builds Component Ecosystem: Aims to develop a strong component ecosystem, reducing import reliance for essential components, thereby improving supply chain resilience and self-sufficiency.
Improves Global Competitiveness: Boosts Indian firms' global market competitiveness through enhanced manufacturing efficiency, scale economies, and export promotion, making them significant global players.
Challenges PLI Scheme:
Limited Domestic Value Addition:
Encourages assembly over substantial domestic value addition, particularly in Mobile and allied Component Manufacturing, perpetuating dependency on imported components.
Despite increased exports of mobile phones, the surge in component imports suggests minimal local value addition.
Constraints from WTO and Value Addition Issues:
WTO rules limit India's ability to tie PLI benefits to local value addition, affecting the promotion of local manufacturing for intricate components like semiconductors.
Transparency Issues in Incentive Allocation:
The method for distributing incentives is unclear and lacks transparency, leading to concerns about the fairness and effectiveness of fund allocation across sectors.
No Centralized Tracking:
The absence of a unified database complicates the evaluation of the scheme's impact, introducing administrative hurdles and affecting transparency.
Strategies for Enhancing PLI Scheme Effectiveness:
Comprehensive Scheme Evaluation:
The government should undertake detailed assessments of the PLI scheme's outcomes, focusing on job creation metrics, cost efficiency, and identifying areas of underperformance.
Tackling Sectoral Challenges:
It's vital to understand and address the specific obstacles and challenges encountered by various sectors to efficiently expand the scheme to additional areas.
Improving Oversight and Allocation:
Establishing strong monitoring systems and clear criteria for funding allocation can improve the transparency and accountability of incentive distribution.
Boosting R&D Investment:
Stimulating research and development investment, particularly in technology-intensive sectors, to drive innovation and enhance local content, in line with the PLI scheme’s goals.
Better Inter-agency Collaboration:
Enhancing collaboration between different government ministries, departments, and key stakeholders is crucial for the smooth execution of the PLI scheme and resolving issues more effectively.
In summary, the PLI scheme for white goods offers significant potential for boosting India's manufacturing sector and its integration into international supply chains. However, it encounters challenges like minimal value addition, unclear incentive distribution, and WTO regulation constraints that require strategic improvements. A comprehensive strategy involving detailed assessment, precise policy changes, and improved stakeholder collaboration is crucial. Through these steps, the PLI scheme can become a key driver for sustainable development, innovation, and achieving India's goal of becoming a leading producer in the white goods industry.
