MeitY recommends reworking PLI scheme for IT hardware

The Ministry of Electronics and Information Technology (MeitY) is reworking the Production Linked Incentive (PLI) scheme for IT hardware to incorporate some of these companies’ requirements and make it relatively attractive for them.

The PLI scheme for IT hardware in its new form (PLI 2.0) is likely to have an outlay of ₹17,000 crore compared with ₹7,350 crore in the ongoing scheme. The average incentive over six years will be about 5.3% compared with the 2.2% over five years offered now, they said. Under the revised package, the scheme’s validity is being increased to eight years, starting April 1. But applicants may choose the starting date as April 1, 2024, or even April 1, 2025. The scheme will be applicable for six years. MeitY is likely to soon seek Cabinet approval for the revised scheme.

In its first year, the scheme has not performed according to expectations. Most of the 14 global and domestic players have not been able to meet their investment or production targets to qualify for incentives.

Explaining the thinking behind the plan, Minister of State for MeitY Rajeev Chandrasekhar told Business Standard: “The IT hardware is not a high growth market, it is a very set market. There are only four to five players and almost all of their manufacturing is in China. The players are known — HP, Dell, and Apple, among others, and some Chinese brands. Therefore, there is not much incentive for too many companies to come here and make investments and the first round of PLI reflected that.”

However, these companies have shown interest in shifting part of their capacity at least to India. Apple has already done this for mobile devices. “We believe now that there is a tremendous interest from these companies and others to move some of the production to India and we are engaged with them and we would definitely want to welcome them,” said Chandrasekhar.

He said the government is trying to understand what needs to be done to bring them in. “We are looking at whatever disability they have in manufacturing in India and what other access, such as market aggregation, they require to make them invest in India. It is an area of focus,” he said.

‘Disability’ is a reference to the gap between the cost of production in India and the cost in countries like China and Vietnam. The aim is substantially to reduce it as was done in mobile devices through the incentive scheme. HP and Dell are already eligible players under the existing PLI scheme for IT hardware. When contacted, Dell said it could not comment as it was in a “silent period”. Apple did not respond to the query.

HP India Managing Director Ketan Patel said: “We are discussing various initiatives with the government to increase local value addition in manufacturing. HP has been manufacturing in India since 2006 and last year, we significantly expanded our manufacturing operations in India, adding a whole range of laptops”

Chandrasekhar pointed out that once the national data centre policy is implemented, the cloud in India will grow, as will demand for servers, PCs and laptops. The government is also looking at creating a secured government cloud in an innovative way and that will also drive demand for IT hardware, he added.

The move is significant as India has been heavily dependent on IT hardware through imports and most of them are from China. According to the latest numbers released by the India Cellular & Electronics Association, imports of laptops and tablet categories to India have seen a sharp 50 per cent increase in the April-June quarter from Rs 6000 crore in 2020-21 to Rs 10,000 crore in 2021-22.

Also, a study undertaken by EY pegged the total market for laptops in India in 2019-20 at $4.85 billion out of which imports accounted for 86 per cent of the market at $4.21 billion. The domination of Chinese imports is reflected in the fact that the market value of its imports was $3.65 billion.

Global players find it easier to import at zero duty to India rather than manufacture because the country is a signatory to the 1997 ITA-1 agreement under which it allows the import of completely built units at zero duty for IT products such as laptops.

Global and domestic players eligible under the PLI scheme — including Dell, HP, Flex, Foxconn, Wistron, Dixon, and Optiemus — have already made demands for changes. These include an increase in the incentive on incremental sales from an average of 2.5 per cent to 5 per cent and prolonging the tenure of the scheme from four to eight years. Business Standard