Govt extends PLI scheme for handsets by a year; huge relief for industry

The Government has allowed an extension of the mobile phone PLI scheme by one year to 2025-26, giving a major relief to mobile phone makers including iPhone maker Foxconn and Wistron besides homegrown brands Dixon, Lava and Micromax. The industry had been asking for a year’s extension since the production came to a grinding halt in 2020 because of the pandemic.

With this announcement on Monday, mobile phone makers will now be able to treat FY22 as the first year of production instead of FY21 for the production-linked incentive (PLI) scheme for mobile phone manufacturing, finance minister Nirmala Sitharaman said, while announcing the fiscal stimulus package.

ET had reported in its May 27 edition that the government was considering the industry’s request to allow an extension.

“Companies have been unable to meet incremental production conditions due to; disruption in production activities due to pandemic related lockdown, restriction on movement of personnel, delay in installation of plant and machinery and disruption in supply chain of components,” Sitharaman said, explaining the one-year extension.

A change in the timeline means manufacturers need to post incremental production worth Rs 4,000 crore in this fiscal year, instead of Rs 8,000 crore in the second year. They will thus be able to avail of maximum incentives worth 6% during the year, experts said.

The ambitious Rs41,000 crore PLI scheme–which entails incentives in the form of cash payouts based on investment and targeted increments in production–is aimed at making India a more attractive manufacturing destination and weaning companies away from bases such as China and Vietnam. The Centre is looking to make the country a global manufacturing hub with an export target for phones worth $100 billion over the next five years.

As reported by ET, Samsung is the only one of 16 companies to have met its FY21 target for smartphones. Unlike others, it didn’t have to ship any plant and machinery to India and simply needed to ramp up production at its existing facilities, industry executives said.

The Korean major however, will be able to claim the incentives for 2020-21 as the government has allowed flexibility in choosing any five years out of the six years. This means, that the investments made in 202-21 will continue to be counted as eligible investments, a statement issued by the government said.

The industry’s last push was made in a May 19 letter, which cited the second wave and the inability to vaccinate workers as key reasons why factories haven’t been running optimally. The India Cellular & Electronics Association (ICEA) made its appeal in a letter to the panel responsible for taking the call on the deferment under clause 8.9 of the PLI guidelines in case of force majeure.

“Karnataka, Tamil Nadu, Andhra Pradesh and Telangana are already under lockdown, and Uttar Pradesh also has severe restrictions,” the lobby group had said, highlighting curbs in the five states where most PLI units are located. “Under the circumstances, even with optimistic estimates, no more than eight months will be available in FY 2021-22, and even that could reduce, for meeting the PLI targets of year two.”

Under the handset PLI scheme, foreign companies needed to invest Rs 250 crore each and produce incremental output of Rs 4,000 crore in the first year to get a 6% direct incentive as cashback.

To get the same incentive, Indian handset makers had to invest Rs 50 crore each for Rs 500 crore of incremental output. In the second, third, fourth and fifth years, manufacturers will have to produce phones worth Rs 8,000 crore, Rs 15,000 crore, Rs 20,000 crore and Rs 25,000 crore over the base year production value, which would significantly enhance annual exports of phone handsets from the existing $3 billion.



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