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Production Linked Incentive (PLI) Scheme for IT Hardware Products

IBEF, Knowledge Centre

Jul 23, 2021 10:59

Overview
In comparison with capabilities of countries worldwide, India's IT hardware manufacturing sector is plagued with financial crisis due to lack of level playing field. According to ICEA (India Cellular & Electronics Association) and ELCINA (Electronic Industries Association of India), the country’s electronics manufacturing sector currently struggles with disability of ~8.5-11% in terms of capital because of the following causes:

  • Inadequate infrastructure
  • Lack of domestic supply chain and logistics
  • High cost of financing
  • Inadequate availability of quality power source
  • Limited design capabilities and focus on R&D by the industry
  • Inadequacies in skill development

India is a large and emerging market for IT hardware products, with >US$ 120 billion of IT hardware items anticipated to be consumed over the next decade. At present, India’s demand for IT hardware products is met through imports. Following this, along with rising strategic security concerns and China’s Plus One business strategy, which comprises to avoid investing only in China and diversifying businesses into other countries, the Indian government, in April 2020, announced production linked incentive (PLI) schemes worth Rs. 1.97 trillion (US$ 26.4 billion) in 13 sectors to boost manufacturing in the country. With this PLI scheme, the government aims to entice multinational firms to shift their manufacturing capacities to India; and further encourage MSMEs to take advantage of possibilities provided by a thriving and strong ecosystem.

Owing to the significant success of the PLI scheme in other sectors, on February 24, 2021, the government announced to expand the scope this programme to include IT hardware products. The scheme focuses on improving indigenous/domestic manufacturing capabilities and attracting investments in the IT hardware value chain, with laptops, tablets, all-in-one PCs and servers being the target categories.

The PLI scheme is likely to benefit five key global players and 10 domestic champions in the field of IT hardware manufacturing. Further, under the Aatmanirbhar Bharat initiative, the government aims to promote manufacturing in this segment owing to the heavy reliance on imports for these items.

PLI Scheme
The PLI scheme will be implemented within the overall financial limits of Rs. 7,350 crore (US$ 1.02 billion) over four years; this includes an incentive outlay of Rs. 7,325 crore (US$ 1.01 billion) and administrative charges of Rs. 25 crore (US$ 3.45 million). Under this scheme, for the next four years, the government will offer an incentive of 4-2% or 1% to companies on their net incremental sales (over the base fiscal year) that is achieved from domestically manufactured products.

Under the PLI scheme, the government approved 14 eligible candidates that are expected to generate a total production of >Rs. 1.61 lakh crore (US$ 21.5 billion) over the given period. Of these 14 companies, it selected four foreign companies under the IT Hardware companies that comprised Dell, ICT (Wistron), Flextronics and Rising Stars Hi-Tech (Foxconn), while the remaining 10 were domestic companies, which included Lava International Limited, Dixon Technologies (India) Limited, Infopower Technologies (a JV between Sahasra and MiTAC), Bhagwati (Micromax) Neolync, Optiemus, Netweb, Smile Electronics, VVDN Technologies and Panache Digilife.

In addition, the approved foreign companies proposed a production of Rs. 84,746 crore (US$ 11.3 billion), whereas the approved domestic companies proposed a production of Rs. 76,007 crore (US$ 10.2 billion). The scheme will bring additional investment in IT Hardware manufacturing worth Rs. 2,517 crore (US$ 337.3 million) and generate an additional >36,000 direct jobs, along with ~3x indirect jobs. Following this, the domestic value addition is expected to rise from the current 10-15% to 25-30%.

Industry Responds
Prominent industry leaders have welcomed this PLI scheme and expressed keen interest in participation.

  • Mr. A. Gururaj, Managing Director, Optiemus Electronics Limited, said, “We firmly believe this scheme will enable us to be competitive in manufacturing of these products in India for domestic and export requirements. India holds immense potential in electronics manufacturing and this scheme has the potential to act as catalyst in achieving our Prime Minister’s vision of Atmanirbhar Bharat.”
  • Mr. Vivek Bansal, Co-founder and President Engineering, VVDN Technologies, stated, “We are delighted to have been approved for the PLI scheme for IT hardware. It showcases India’s progress to becoming preferred manufacturing destination and resonates strongly with PM Modi’s call of Atmanirbhar Bharat – a self-reliant India. The PLI scheme goes hand in hand with VVDN’s vision and has further strengthened our resolve to do more of design and make in India products. While working in the datacentre space, VVDN has its IPs (Intrusion Prevention System) for OvS (Open vSwitch) and SSL (Secure Sockets Layer) for network compute. With these investments made in the R&D and manufacturing infrastructure along with the PLI approval, we are quite excited and confident to be able to meet the production demands for the IT hardware products.”
  • Mr. Sunil Vachani, Executive Chairman, Dixon Technologies (India) Limited, added, “We have set aside an investment of Rs. 25 crore (US$ 3.35 million) over four years, of which Rs. 10 crore (US$ 1.34 million) will be spent in the first year in our new facility which will have a capacity of producing 500,000 laptops and 2.5 million tablets in a year.”
  • Mr. Amit Rambhia, Chairman, Panache Digilife, said “With the introduction of the PLI Scheme, there will be fresh investments in the sector, which will provide us with financial impetus but also creates and ecosystem in the IT Hardware Industry which in turn will enable us to compete with the global players.”

Conclusion  
Currently, in India, the demand for laptops and tablets is largely met through imports, which were valued at US$ 4.21 billion and US$ 0.41 billion, respectively, in 2019-20. The global market for IT Hardware is dominated by the top seven companies, which account for ~70% of the world's market share; thus, these companies exploit large economies of scale to compete in the global markets. As a result, the government is keen to help these companies expand their operations in India and thereby, make the country a global destination for manufacturing IT hardware products.

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