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Production Linked Incentive Scheme for telecom sector – 33 Indian companies to get Rs 12000 crore

Production Linked Incentive Scheme for telecom sector – 33 Indian companies to get Rs 12000 crore

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  • GS 3 || Economy || Economic Reforms || Liberalization & Privatization

Why in the news?

33 Telecom companies to benefit from Rs 12,000 crore in PLI scheme.

Present context:

  • The government has shortlisted 33 companies that will be awarded Rs 12,195-crore benefits under the production linked-incentive (PLI) scheme for telecom and networking equipment.
  • The scheme has received 36 applications, three of which are being rejected.
  • The winners who would be notified soon have committed Rs 3,455 crore as proposed investments.
  • Applications of Tech Mahindra, Sterlite Technologies and Kenstel Networks are likely to be rejected on technical grounds.

About the PLI scheme for telecom sector:

  • Following the launch of a production-linked incentive (PLI) scheme for manufacturing, India this year launched the scheme for telecommunications (telecom) and networking products, with an outlay of Rs 12,195 crore over five years.
  • The Cabinet approved PLI for manufacturing telecom equipment, including core transmission equipment, 4G/5G next-generation radio access network and wireless equipment.
  • Access and customer premises equipment, Internet of Things access devices, other wireless equipment, and enterprise equipment like switches, routers, etc.

All about Production Linked Incentive Scheme:

About Production Linked Incentive Scheme:

  • Position India as a global hub:The Ministry of Electronics and Information Technology (MeitY) has introduced a Production Linked Incentive Scheme for Large Scale Electronics Manufacturing (Scheme) with effect from April 1, 2020, as part of the National Policy on Electronics 2019, which aims to position India as a global hub for electronics system design and manufacturing.
  • The scheme offers eligible companies a 4-6 percent incentive on incremental sales (as compared to the base year, i.e., 2019-20) of mobile phones and specified electronic components (such as semiconductors, diodes, printed circuit boards, and so on) manufactured in India for a period of five years in the following three categories: (a) mobile phones manufactured and sold by domestic companies; (b) electronic components (such as semiconductors, diodes, printed circuit boards, and so on) manufactured in India.
  • All Indian firms that satisfy the requirements:The plan is open to all Indian firms that satisfy the requirements of a defined additional investment (between 100 crore and 1,000 crore) and incremental sales of manufactured goods over the following four years.
  • It’s worth noting, however, that the Government will only choose five local and five international mobile manufacturing businesses, as well as ten electronic component makers, from the applications received.
  • Manufacturing revenues: Companies with the largest consolidated worldwide manufacturing revenues will be considered if there are more applications. Given a result, the plan is intended to choose only a few outstanding firms, as the government has limited funds to disburse.
  • Research, development and technology:According to reports, big worldwide mobile manufacturing firms like Samsung and Apple contract manufacturers like Foxconn, Wistron, and Pegatron, as well as Indian local companies like Lava and Micromax, have registered for the plan. Furthermore, while land and building expenditures are not eligible, research and development and technology transfer agreements have been made eligible under the plan in order to boost innovation.

Need for PLI Scheme:

  • Provides sufficient assistance: The PLI Scheme provides sufficient assistance to Sunrise industries in their early stages.
  • Sunrise Industry: These are relatively young sectors that are now expanding rapidly. These are also likely to become increasingly significant in the future. Solar energy industries, food processing businesses, and so forth.
  • Little contribution to the global supply chain: Furthermore, despite its dominance in the services industry, India makes relatively little contribution to the global supply chain. The PLI plan can assist India in developing an export base.
  • For example, the minimum production in India owing to PLI Schemes is anticipated to be above US$ 500 billion in five years, according to a Parliamentary study.
  • Prevent China’s hegemony: Diversification of supply chains is becoming increasingly popular. Especially to prevent China’s hegemony. The PLI Scheme can lower Chinese demand by boosting output.
  • Economy is reliant on consumer spending: After the Covid-19 epidemic, attract worldwide investment to India. India’s economy is reliant on consumer spending. The PLI plan invites greater foreign investment to India by giving incentives.

Advantages of PLI Schemes:

  • Expansion of current capacity: The PLI Scheme adds to India’s current successes. For example, India’s textile industry is one of the world’s largest, and India is the world’s second-largest steel manufacturer. Incorporating the PLI Scheme into these industries will help them grow even more.
  • Large investments are required: By 2025, India is anticipated to develop a digital economy of $1 trillion. Large investments are required for programs such as the Smart City Mission and Digital India. India is currently importing raw materials and equipment. The PLI Scheme, on the other hand, would supply low-cost indigenous items. As a result, the cost of other projects will be reduced as well.
  • Unable to make long-term investments: The government is unable to make long-term investments in capital-intensive industries. Because their gestation period is longer. However, the PLI Scheme, which is based on incremental production, is more successful than grant-based input subsidy programs such as Mega Food Parks. This will result in a reduction in government spending.
  • Create job opportunities: Some industries, such as textiles and steel, are labor-intensive. India can minimize unemployment and generate qualified workforce by expanding manufacturing in these industries.
  • Local manufacturing units are encouraged: The plan attempts to boost local industry. The plan also makes it easier for Indian businesses to innovate and conduct research, development, and technological upgrades. As a result, local manufacturing units might eventually become globally competitive.

PLI Schemes and their Challenges:

  • Incentives are subject to a financial cap under the plan. As a result, an overachieving firm does not realize the rewards of its successes.
  • Effective cost of manufacturing in India: The effective cost of manufacturing in India is greater than the rivals in the bulk of the PLI Scheme-focused sectors. According to an Ernst & Young study, if the cost of producing one mobile phone is Rs.100. The mobile’s effective manufacturing cost in China is 79.55, 89.05 in Vietnam, and 92.51 in India (including PLI). As a result, notwithstanding the PLI plan, investors will pick other nations.
  • Aside from that, the strategy failed to solve the primary issues that Sunrise sector firms confront. as an example,
  • Local businesses will have a smaller representation in the Scheme, which will favor foreign player’s more than domestic firms. Because multinational firms may invest and produce in India, they can gain market share in the Indian market. As a result, the local manufacturer will be at a disadvantage. For example, nearly all Xiaomi phones sold in India are produced in the country. As a result, Indian companies may encounter difficulties in gaining market share.
  • The issue of low-cost imported materials: Domestic businesses may face competition from low-cost imports. Solar PV Modules, White Goods, and other Chinese products are very popular.
  • India has not focused on appropriate R&D development and raw machinery due to a lack of cutting-edge technology and foundries. As a result, there was a lack of talent retention and, eventually, a “brain drain.” As a result, the PLI Scheme’s ability to grow sectors is debatable.
  • The WTO Challenge: In September 2019, Chinese Taipei filed a complaint with the WTO about a tariff increase under the Phased Manufacturing Program (PMP). If the PMP is determined to be non-compliant with the WTO, domestic industry growth will be hindered.

What more can be done for future for better performance of PLI?

  • Focus on supply chain co-location: Under the PLI strategy, the government must encourage foreign businesses to co-locate (the consolidation of several organizations in a single site) with their existing industrial ecosystems. This will save the government money when it comes to investing and developing ecosystems for investors. Assemblers and component makers will be brought together as a result of this. As a result, the manufacturing effective cost is reduced.
  • Furthermore, the government must concentrate on the service sector. Other nations, such as China, are focusing on the long-term development of both the manufacturing and service sectors.
  • India must also address other important industrial sector problems through measures such as
  • Cost reduction– India must explore lowering its electricity and logistics factor prices.
  • Encourage states to remain competitive and avoid trade-restrictive policies such as job reserve for locals, among other things.
  • Implementing structural reforms, such as land reforms, is also important.
  • In order to satisfy the demands of the rising industries, India must also enhance its human resources.
  • Profiting from Anti-Chinese Feelings: Global players such as the United States and Australia are attempting to diversify their supply networks while also making accusations against China. India should seize this once-in-a-lifetime chance to entice Chinese outbound investment.

Conclusion:

While the next few years will reveal whether the PLI scheme hits any roadblocks, it does contain all the ingredients required to increase investments, employment generation, domestic value addition, capacity building and innovation to make India ‘Atmanirbhar’ as far as mobile phone manufacturing is concerned.

Mains oriented question:

To make India a global manufacturing hub along with the PLI Schemes, certain reforms are necessary. Explain in detail. (200 words)