PLI Scheme: What is it & Which Sectors are Thriving Under the Scheme?

Atmanirbhar: The ability to be independent of reliance on others for major/minor tasks. India’s Prime Minister, Narendra Modi, made the term famous by introducing the citizens to the dream of an Atmanirbhar Bharat (self-reliant India). Many new campaigns and projects have been in motion ever since to make India the one-stop destination for the best of all worlds.

One such scheme that has boosted India’s economy and is pushing domestic manufacturing to compete with global entities is the Production Linked Incentive Scheme. Abbreviated as PLI Scheme, it was launched in March 2020.
 
After a successful start, PLI Scheme 2.0 was launched on 29 May 2023, with a budgetary outlay of ₹1.97 lakh crore. 14 sectors were announced to receive incentives on incremental sales for products manufactured in India. Following is the list of the sectors included in the scheme:

1. Mobile Manufacturing and Specified Electronic Components
2. Critical Key Starting Materials/Drug Intermediaries & Active Pharmaceutical Ingredients
3. Manufacturing of Medical Devices
4. Automobiles and Auto Components
5. Pharmaceuticals Drugs
6. Specialty Steel
7. Telecom & Networking Products
8. Electronic/Technology Products
9. White Goods (ACs and LEDs)
10.  Food Products
11.  Textile Products: MMF segment and technical textiles
12.  High-efficiency Solar PV modules
13.  Advanced Chemistry Cell (ACC) Battery
14.  Drones and Drone Components.

Looking at this massive development, I can proudly say,

Mera Desh Badal Raha Hai,
Aage Badh Raha Hai!!

Let’s briefly see what this scheme entails, and then we will discuss the top sectors benefitting the most from it.

What is the PLI Scheme, and What are its Motives?

The government devised the PLI Scheme to boost domestic production and attract foreign companies for mass production nationwide. Through this scheme, the Indian government plans to increase employment opportunities, facilitate export activities, and reduce the import of essential components.   

As per the Press Information Bureau (PIB), “the purpose of the PLI Schemes is to attract investments in key sectors and cutting-edge technology; ensure efficiency and bring economies of scale and size in the manufacturing sector and make Indian companies and manufacturers globally competitive.”

The base idea for the PLI Scheme also comes with what can be described as the “multiplier effect”. Hence, every job created and every Rupee invested in manufacturing has a positive cascading effect on other sectors of the economy.
In simple words, India now is all about…

Top 3 Sectors Benefitting the Most from the PLI Scheme

The PLI 2.0 Scheme was designed to supercharge India's hardware manufacturing ecosystem. As a result, these three sectors have seen the biggest gains in productivity and efficiency.

1. Mobile Manufacturing and Specified Electronic Components
2. Automobiles and Auto Components
3. Pharmaceuticals Drugs & Manufacturing of Medical Devices

Let's start with the first sector on the list.

Mobile Manufacturing and Specified Electronic Components

India's population crossed the mark of 50% in smartphone penetration by the end of 2022, second only to China, which boasts over 70% of users. Over 1,013 million citizens in India use smartphones today, bringing the vision of a "Digital India" closer every day.

From the opening of new Apple stores in India to Foxconn's plans for establishing a manufacturing plant, the past 2-3 years have seen a significant rise in the electronics sector. PLI Scheme contributed massively to this advancement, attracting several leading global smartphone manufacturers to India.

The incentives distributed under the PLI Scheme differ for all 14 sectors. With an outlay of ₹48,276 crore, the annual payout for electronics and smartphones is based on a percentage of revenue generated for up to five years. Companies can earn incentives ranging from 4% to 6% of their incremental sales over five years, disbursed annually.

As per the secretary of the Department for Promotion of Industry and Internal Trade, Rajesh Kumar Singh, smartphone manufacturing has witnessed a 20% local value addition since 2021. Alongside PLI, the electronics manufacturing sector was also boosted due to the Phased Manufacturing Programme (PMP).

Just look at this data below, and you will see the immediate surge in mobile phone production in India by the end of FY22.

Although the financial year 2020-21 faced a minor reduction, India was able to bounce back by doubling the production value from two years prior due to support from the PLI Scheme.

Now, the companies to receive incentives from the PLI Scheme are chosen based on specific requirements. To qualify for the PLI Scheme, companies must:

• Be registered in India and have an operational manufacturing facility for mobile phones or components.
• Sell at least ₹5,000 crore worth of mobile phones and ₹600 crore worth of components each year.
• Export at least 60% of their mobile phone production and 30% of their component production.

Here are a few foreign companies that have helped boost smartphone manufacturing in India under the PLI Scheme:

• Apple:

Multinational technology giant Apple has increased its production of iPhones in India by over 50% over the last fiscal year, worth $7 billion, which is around ₹58,191 crore. As per Bloomberg, Apple now produces nearly 7% of its iPhones in India.

On the release day of new models, iPhone lovers across the nation can finally wave goodbye to mornings like this! 👇

• Samsung:

Samsung has been present and dominating the Indian market for over a decade now. It is one of the favourite brands and has seen a constant rise in sales. It will receive a ₹500 crore PLI incentive as they have increased its manufacturing units, including units for production of high-end phones in India. Samsung now has the world's second-biggest manufacturing facility in Noida and the most extensive research and development centre in Bengaluru.

• Foxconn:

Foxconn, the famous iPhone manufacturer, has announced plans to invest over $8 billion (around ₹66,504 crore) in its Indian manufacturing operations over the next five years. They are also investing in India to establish a semiconductor plant and are in constant talks with the Karnataka government for the same.

Alongside the above-mentioned global companies, Pegatron, Rising Star and Wistron, local players such as Lava, Micromax, Optiemus, United Telelinks Neolyncs and Padget Electronics, a subsidiary of Dixon Technologies, also participated in this scheme.

Automobiles and Auto Components

In 2022-23, the value of automobile components imported into India amounted to $20.3 billion (around ₹1,68,753.9 crore). If you look at the infographic below, you will witness an increase in the value of imported automobile components from the previous year.

India is one of the biggest markets, fourth-largest, for the automobile industry in the world. Despite this, the sector heavily relies on imported parts, low and high-value, from foreign nations. Limitations like cost disabilities, inflationary pressures, shortage of semiconductor chips, etc., are major difficulties the sector faces.

The PLI Scheme for the automobile sector is devised to eliminate these difficulties. Plus, the scheme aims to build a robust supply chain of advanced automotive technology products and facilitate the automobile industry to move up the value chain into higher value-added products.

The scheme has a budgetary outlay of ₹25,938 crore for incentives and is subdivided into Champion OEM Incentive Scheme and Component Champion Incentive Scheme.

Champion OEM Incentive Scheme is applicable to Battery Electric Vehicles (BEV) and Hydrogen Fuel Cell Electric Vehicles (HFCEV), two-wheelers, three-wheelers, passenger vehicles, commercial vehicles, automobiles meant for military use, etc.

Whereas the Component Champion Incentive Scheme applies to advanced automotive technology components of vehicles, Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits, vehicle aggregates of two-wheelers, three-wheelers, passenger vehicles, commercial vehicles and tractors, etc.

Companies like Maruti Suzuki, Hero MotoCorp, Tata Autocomp, Mitsubishi Electric, Toyota Kirloskar, Motherson Sumi, Bosch, Lucas-TVS, etc., are selected under the PLI Scheme.

Pharmaceuticals Drugs & Manufacturing of Medical Devices

The pharmaceutical sector was included under the PLI Scheme to boost domestic production of High-End Formulations, Critical APIs and High-End Medical Devices. With a rapid rise in the production of medicines and devices, export is also targeted to be boosted. The Department of Pharmaceutical received an incentive of over ₹15,000 crore as part of the PLI Scheme.

In 2022-23, India's revenue from pharmaceutical exports was ₹2,10,318.9 crore (around $25.3 billion) from ₹2,04,666.06 crore in 2021-22.

So far, 55 applicants from the pharmaceutical department have been selected, and an incentive of ₹166 crore will be distributed between four selected applicants, namely Reddy's Laboratories Limited, Biocon Limited, Strides Pharma Science Limited and Premier Medical Corporation Private Limited.

The Bottom Line

Manufacturing is a key ingredient to economic growth, and this is the base by which the Indian government is mapping out the PLI Scheme. Although the initiative brings opportunities for both the market and citizens, it has limitations.

Achieving the set production targets can be difficult for new companies, and the incentives distributed among market leaders will increase the competition gap. The scheme must be more diverse to cater to various company requirements.

Regardless of the limitations, it’s the start of a better future, and the upcoming days look mighty fine for the Indian market.