Large IT hardware vendors do not find PLI scheme attractive enough

Nearly half of the Rs 7,325-crore budget allocated for the production-linked incentive (PLI) scheme for IT hardware is likely to go unused with the applicant companies such as Dell, Wistron Flextronics, Foxconn cumulatively committing to produce far lower than expected by the government.

Manufacturers are piqued over the low incentive structure of the scheme which offers only 1%-4% reward and does not compensate for the disabilities of shifting production to India of duty-free products like laptops, tablets and data servers from countries like China and Taiwan.

Thus, the 19 applicants of the scheme have pledged to produce goods only upto minimum eligibility threshold or goods worth Rs 1.60 lakh crore, including Rs 60,000 crore of exports over the four-year period of the scheme. This is sharply lower than the government’s estimate of achieving production output worth Rs 3.26 lakh crore, of which exports were expected to be worth Rs 2.45 lakh crore.

“We as an industry have made a commitment to produce goods In India, however the scale is constrained over the four-year period because the financial outlay under the scheme does not fully compensate for the disabilities that companies face for shifting production to India,” said George Paul, CEO of Manufacturers’ Association of IT.

He added that achieving an ambitious target over and above the threshold and making India an export hub for IT hardware would need a much larger push.

“All companies are ready to invest but only if there is an attractive business case to shift large scale manufacturing to India,” Paul said.

A top executive of a firm approved under the scheme said local manufacturing of the devices earmarked is almost negligible in India.

“Added to the low budget of incentives, there is also a stringent value-addition criteria for companies to meet. All this calls for larger measures to be taken by the government for us to be able to make a realistic and business-friendly commitment,” the executive said.

The companies have also sought an extension of the timeline to avoid landing in a situation like handset-making companies who missed out the crucial 6% incentive during FY21. Given the global supply chain difficulties and India’s coronavirus crisis, expanding capacity will take more time than estimated earlier, industry executives say.

The ministry of electronics and IT, earlier this month, said 19 companies including Dell, ICT (Wistron), Flextronics, Rising Stars Hi-Tech (Foxconn), Lava, Dixon, Infopower (a joint venture of Sahasra and MiTAC), Bhagwati (Micromax), Syrma, Orbic, Neolync, Optiemus, Netweb, VVDN, Smile Electronics, Panache Digilife, HLBS, RDP Workstations and Coconics had applied for PLI.

Insiders expect approval letters to be disbursed by early June.

As per the guidelines, foreign players must invest Rs 500 crore and achieve incremental sales of Rs 1,000 crore in the first year, Rs 2,500 crore in second, Rs 5,000 core in the third and Rs 10,000 crore in the last year. For domestic players, investment target is Rs 20 crore while incremental sales target is Rs 50 crore, Rs 100 crore, Rs 200 crore and Rs 300 crore in four successive years.

Besides this, the government has also set a value-addition criteria beginning the second year when companies must start printed circuit board assembly in India. Next year, they must add battery packs and in the fourth year the manufacturing of power adaptors or cabinets/chassis/enclosures must be localised.

Upon qualifying all these criteria, companies will receive an incentive of 1%-4% on incremental sales over base year FY19-20. Business Mayor