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India’s production-linked incentive scheme for IT hardware

The Union Cabinet chaired by Prime Minister Narendra Modi has approved the Production Linked Incentive (PLI) Scheme for information technology (IT) hardware. The scheme proposes production-linked incentives to boost domestic manufacturing and attract large investments in the Indian IT hardware value chain. The target segments under the proposed scheme include laptops, tablets, all-in-one PCs, and servers.

According to a press release, the PLI Scheme for mobile phones and specified electronic components was launched last year, during the middle of the pandemic, in a move to establish India as a hub of electronic manufacturing. The release claimed it has been a huge success in terms of the interest received from both global and domestic mobile manufacturing companies. 16 companies were approved under the first round of the PLI Scheme for the large-scale manufacturing of mobile phones and specified electronic components.

Further, the employment generation from the initiative during last year stands at around 22,000 jobs. Another scheme for promoting the manufacturing of electronics components, called SPECS, has also received 22 applications involving investment in the areas of active, passive, and electromechanical components and displays and mechanics for mobile phones.

Based on the initial success of the PLI Scheme for mobile phones and specified electronic components, ten target sectors, along with specific product lines with high growth potential, were identified by the country’s think tank, the National Institute for Transforming India (NITI Aayog), for implementation of the scheme.

The latest edition of the scheme is a further step in that direction. It comes in the close wake of the PLI Scheme for Telecom and Networking Products that was approved by the Union Cabinet, last week. The PLI Scheme will extend an incentive of 4% to 1% on net incremental sales (over base year i.e., 2019-20) of goods manufactured in India and covered under the target segments, to eligible companies, for four years.

The scheme is likely to benefit five major global players and ten domestic champions in the field of IT hardware manufacturing, the release said. This is an important segment to promote manufacturing under the AtmaNirbhar Bharat, as India is hugely dependent on imports in this sector.

The release noted that the PLI Scheme was designed so that the incentives are payable by the government only after investments have been made, employment has been generated, and production and sales targets have been met.

The scheme will enhance the development of the electronics ecosystem in the country. India is expected to be a global hub for electronics system design and manufacturing (ESDM) on account of the integration with global value chains, thereby becoming a destination for IT hardware exports.

The scheme has an employment generation potential of over 180,000 (direct and indirect) over four years. It will also boost the domestic value addition for IT hardware, which is expected to rise to 20%-25% by 2025 from the current 5%-10%.

Currently, the laptop and tablet demand in India is largely met through imports valued at IN₹29,470 crores (US$4.21 billion) and IN₹2,870 crores (US$0.41 billion), respectively. The market for IT hardware is dominated by around seven companies globally, which account for about 70% of the world’s market share. These companies are able to exploit large economies of scale to compete in global markets, the release said. These companies must expand their operations in India and make it a major destination for hardware manufacturing.

Given the current global scenario, the world of manufacturing is undergoing a paradigm shift. Manufacturing companies across the globe are looking to diversify their manufacturing locations to mitigate the risk involved in depending on a single market.

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