The indispensable production incentive program (PLI) for sectors such as automotive, white goods, pharmaceuticals, textiles, telecommunications and networking, high efficiency photovoltaic solar modules, steel Special, air conditioners and LEDs is a welcome step as it will strengthen the entire manufacturing ecosystem and support the vision of making India a US $ 5,000 billion economy by 2025.
The PLI program, announced in November 2020, is “better late than never” given the need to grow the economy out of the unprecedented recession with a focus on domestic manufacturing and the initiative Central Atmanirbhar.
The plan’s down payment is impressive. The total PLI is worth INR 1.45 lakh crore. Of this total, automobiles and automotive components account for a significant share of INR 57,042 crore, followed by the manufacture of batteries at INR 18,100 crore to create a cleaner planet and help the country meet its climate change commitment. , as signed in the Paris Agreement on November 4, 2016..
The PLI program is operational for the manufacture of mobile phones, active pharmaceutical ingredients and medical devices with an expenditure of INR 51,000 crore. The starting incentive rate for cell phones is 6%, and drops to 4% in the fifth and final year. It is well known that thanks to such incentives, India is now established as one of the biggest mobile technology manufacturing hubs.
The Ministry of Heavy Industries will finalize the PLI guidelines for the automotive industry. The program will feature an incentive in the form of a cash grant as a percentage of additional sales from the base year, which will be either 2019-2020 or 2020-2021.
There may be minimum investment criteria and export turnover for businesses to be eligible. In addition, the general nature of the incentives takes the form of cash back rewards ranging from 2% to 14%, depending on the additional sales and investments of the entity during the program period.
Before I delve into the benefits of the PLI program for the automotive industry, here is an overview of the industry. According to statistics for fiscal year 19, the auto components industry contributed about 2.3% of the country’s GDP and employed more than five million people. In the same year, the industry exported approximately $ 15 billion in automotive components. Overall, our performance is currently satisfactory, but there is significant room for growth.
Thus, the PIL program was born out of the need to effect strategic change to help companies achieve scale, competitiveness, market access and management capacities to be global champions. This will further help domestic players to gain more market share in India and globally as the world seeks alternative sourcing outside of China.
Seven key areas to benefit
We are confident that the program will help in seven main areas.
Make national manufacturing competitive and efficient
Generate new jobs
Stimulate entrepreneurship and attract new talents
Create economies of scale
Make India part of the global supply chain
Attract FDI as new investments in the automotive sector
· Improve the variety of long-term exports.
When India becomes part of the global supply chain, it will also lead to increased exports and decreased imports in the automotive segment, which in turn will help strengthen foreign exchange reserves. In addition, the possible emergence of selected export champions will in turn generate demand for a greater number of domestic component manufacturers, which will improve the overall competitiveness of the Indian automotive sector. We see this program attracting investment in basic manufacturing and advanced technology. We predict that the combination of supply chain and FDI, the fifth and sixth factors, will attract FDI in the form of new investments in the automotive and automotive components sectors. Although the Indian market is price sensitive, we believe it will lead to innovations with world class technology at Indian prices.
In addition, the PLI scheme does not affect eligibility for benefits under other schemes. Therefore, we expect this regime, together with relevant state industrial policies and incentives as well as a reduced corporate tax rate for new builders, to provide significant benefits to industry players. automobile.
Ease of doing business
While all of the above are extremely encouraging, the government needs to work on the ease of doing business, especially in the availability of infrastructure, land and uninterrupted electricity to reduce production costs.
With India being a major export hub for two-wheelers in the passenger and utility vehicle segments, the proposed LIP is expected to help the post-COVID recovery as the industry will be encouraged to make a capital investment. During PLI’s tenure, companies may have the potential to double their export revenues.
As the government puts in place a comprehensive PLI program, I believe that the goal of making the auto sector self-sufficient will only be achieved if we have a separate budget for component manufacturers. Incentives should be available on the total increase in sales, including domestic sales. The government should also consider increasing the eligibility criteria for the turnover of foreign companies compared to Indian companies, in line with the practice in other sectors.
I hope the final PIL program will have all of these criteria so that it can make huge contributions to the twin government programs of Atamnirbhar Bharat and Make in India in the future.
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