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IT hardware PLI purse may zoom 2.5 times to Rs 19,000 crore

The government has proposed to increase the production linked incentive scheme’s financial outlay by 2.5 times to around Rs 19,000 crore and double the incentive rates to woo multinational companies such as Dell, HP, Apple, Samsung and Asus to step up manufacturing in the country.

According to a draft of the revised scheme — PLI for IT Hardware 2.0 — which is set to be circulated to major stakeholders for feedback, the restructured scheme will now offer incentives of 4-5.75% over five years, against 1-4% over a tenure of four years at present, officials aware of the matter told ET. Its financial outlay will touch about Rs 19,000 crore from Rs 7,350 crore, they said.

The draft of the revised scheme will be discussed with the industry, after which, it will be put up before the Cabinet for approval. All companies selected under the existing scheme will be allowed to participate in PLI 2.0.

“The average incentives for companies have been increased to 5.34% from 2.21% over five years,” an official told ET.

Same Localisation Schedule

Conditions for availing of the scheme’s benefits will, however, remain the same, including the localisation schedule.

Sources said the industry had asked the government to provide them incentives for up to eight years, to ensure smaller companies have a global competitive advantage. They also sought incentives in the range of 7-8% to improve the viability of manufacturing in India, a second official added.

According to the draft of the reworked scheme, to avail of additional benefits, companies must incorporate localisation of components.

For instance, to receive a 4% benefit in the first year of the scheme, firms need to have a domestic printed circuit board assembly (PCBA) line.

In the second year, along with PCBA, batteries must also be sourced locally, while in the third year, power modules have been added as a local component.

In the fourth and fifth years, four components must be sourced locally, including PCBA, battery, power module and cabinet or chassis, to avail incentives of 5.75%.

“The incentives increase as firms incorporate local components in manufacturing,” an official said.

More for Local Cos

Laptops, tablets, all-in-one PCs and servers are covered under the scheme.

Global companies can avail of benefits on laptops priced Rs 30,000 and above, and tablets priced Rs 15,000 and above. There is no slab for all-in-one PCs and servers. Domestic firms will get incentives on all the products, irrespective of their invoice value.

Global firms need to invest Rs 50 crore in the first year and have incremental production worth Rs 1,000 crore to benefit. For local firms, the investment amount is Rs 4 crore and incremental production should be worth Rs 50 crore.

Incremental investment and production targets increase every year under the scheme, which is likely to begin from April 1 next year. The 2022-23 financial year will be considered for computation of incremental sales.

The PLI for IT hardware, which started from April 1 last year, failed to take off and only one company, Dell, managed to meet production and investment targets in the first year. A total of 19 companies had filed applications under the scheme, including Dell, Wistron, Flextronics and Rising Star (Foxconn).

Initial Hitches

Hardware manufacturers have blamed the low incentive structure of the scheme for its failure, as the median incentive rate of 2.5% does not justify relocating units from China or Vietnam for hardware products.

“The average incentive given to applicants under the (current) electronics hardware PLI is very low. The second factor for poor performance is that there is no duty on the import of electronic hardware. So, the players who have applied have to compete on costs and quality on a global scale,” another official said.

An ecosystem of IT hardware manufacturing is required because PCs or laptops are a significant input of the country’s $200-billion software industry, and levying of any tariff and non-tariff barriers on IT hardware is not possible.

Currently, 70-80% of IT hardware products are imported.

While the incentives under the hardware PLI scheme were indeed low, exports had not improved due to depressed global demand, an applicant of the scheme said.

“For example, the demand for all-in-one personal computers is mainly only from developing countries or high-end laboratories. But the (economic) situation is such that the costs have to be kept low due to steep competition. (More) incentives will help us compete better on scale,” a senior executive at a company that has applied for incentives under the hardware PLI scheme told ET.

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