MeitY plans a revised incentive structure for PLI scheme for IT hardware soon

To scale up domestic production by making it more attractive for global players to relocate units from China, the ministry of electronics and IT (MeitY) will come out with a revised incentive structure for the production-linked incentive scheme for IT hardware sometime next month.

The idea is to engage in fresh consultations with the industry and offer higher incentives so that some of the bigger players, like Apple, which has not participated in the scheme, come forward with their India manufacturing plans.

Since the IT-hardware PLI scheme was announced in February 2021, applications have been received from some of the global players like Dell and HP, which already had some production units in the country. The scheme has, however, been not as successful as the one for smartphones.

For instance, for smartphones quarterly production under PLI is averaging at Rs 67,200 crore against average quarterly estimate of Rs 43,000 crore and has attracted an investment of Rs 2,600 crore. In comparison, the IT hardware has seen average quarterly production reaching Rs 500 crore against estimated Rs 750 crore and attracted investments of Rs 16,500 crore.

There were problems right from the start with the IT hardware scheme.

When the government had announced the scheme on February 24, 2021, the outlay was fixed at Rs 7,350 crore over a four year period. During this period, the government had estimated a production of up to Rs 3.26 lakh crore, of which exports was expected to be of the order of Rs 2.45 lakh crore. Later that year on May 4 when the government announced the names of the companies which had applied for the scheme, the production target was slashed to Rs 1.60 lakh crore of which exports would be of the order of Rs 60,000 crore.

Since the incentive structure is based on achieving a minimum threshold of incremental sales over base year going up to a maximum limit, with companies committing lower production target the outlay of `7,350 crore for the scheme automatically got pruned by half.

IT hardware manufacturers blamed this on the low incentive structure which works out to an average of 2-2.5% over a four-year period which does not justify relocating units from China or Vietnam, especially for hardware products where import duties are nil as they fall under Information Technology-I products.

The incentive structure for mobile phones PLI, which got operationalised in August 2020 and saw companies committing up to the maximum limit, works out to around 4.5% over a five-year period.

Industry executives feel that the ideal incentive structure for IT hardware should be in the range for 7% to 8%.

For companies like Dell and HP, who have participated, domestic sales would continue to be more attractive than exports that has been the main driving force for the government behind designing PLI schemes.

India’s import of laptops has increased by 42% – from $2.97 billion to $4.21 billion – in value terms, in the last five years. Around 87% of imports continues to come from China. In absolute terms, India’s dependency on China is very high – it has increased from $2.83 billion to $3.65 billion during the last five years. For the year ending March 2021, India’s import of laptops is estimated to have reached close to $5 billion out of which imports from China would be around $4.35 billion.

As per estimates, the global market for laptops, tablets and desktop computers has grown from $229.38 billion in 2018 to $ 240.99 billion in 2019 and is expected to stabilise around $220 billion by 2025. Only six global players comprise 89% of the market shipments for laptops and 81% for tablets. United States and European Union together represent more than 40% of the global market. FinancialExpress