After smartphones, the government is likely to extend the tenure of production-linked incentive scheme for IT hardware, at least by a year. Sources said that several of the selected firms have sounded the government that due to supply chain issues and global shortage of semiconductors, there could be production delays because of which the first year (FY22) incremental production and sales targets could be missed.
As is known, under the PLI, manufacturers are expected to meet the incremental production and sales target every year during the tenure of the scheme against the base year.
For IT hardware, which comprises laptops, tablets, all-in-one personal computers (PCs) and servers, the base year is FY20 and the tenure is four years. The starting year of the scheme is FY22 so if one year extension is given, the terminating year would be shifted to FY26 against the original FY25.
If the tenure of the scheme is extended by a year, it would in most likelihood be similar to the one for smartphones where the manufacturers would have the option of choosing any of the four years during the five year tenure to meet the targets and claim financial incentives. This is to ensure that if some manufacturers meet the first year (FY22) targets, they get the incentive for that year.
“For IT hardware industry, supply chain issues are a concern because of shortage of semiconductor supplies. There will be a request from the industry seeking an extension by another year. At the end of the day, we have to be realistic about what can be done and I think given the constraints, especially supply chain, a request for an extension of one year will come from our side,” Optiemus Electronics, MD, A Gururaj told Financial Express. Optiemus is one of the selected companies for IT hardware PLI scheme.
Apart from an extension of tenure, the IT hardware industry is also seeking an increase in incentives for the scheme. The PLI for this sector is low at an average of 2-2.5% over a four-year period, which does not justify relocating units from China or Vietnam. Just for comparison: the incentive structure for mobile phones PLI, which got operationalised in August 2020 is 4.5% over a five-year period.
Since import duties on hardware products are nil as they fall under Information Technology–I products, manufacturers do not see much reason to relocate their base from China to India for such a low incentive structure. Industry executives feel that the ideal incentive structure should be in the range for 7% to 8% because unlike smartphones, companies have to start afresh in setting up manufacturing units.
Though the government is considering giving a one year extension, various industry bodies maintain that the ideal tenure for the scheme should be 8 to 10 years as that much time is needed to create a full manufacturing ecosystem. “Four years is a very short period for manufacturing. By the time you set up machines, supply chain and start everything, 8-9 months are gone. It’s not like software, which can be started overnight. Manufacturing takes time and four years is a pretty short time in that sense,” said an industry executive.
If the government extends the tenure of the scheme, it would be the second change since the announcement earlier this year. The changes in output by slashing the target was made the day the government announced the names of the selected companies as amounts committed by manufacturers were below expectations.
When the scheme was announced on February 24, the outlay was fixed at Rs 7,350 crore over a four year period. During this period, the government had estimated a production of up to Rs 3.26 lakh crore, of which exports was expected to be of the order of Rs 2.45 lakh crore. But when the names of the selected companies were announced in May, the production target was slashed to Rs 1.60 lakh crore of which exports would be of the order of Rs 60,000 crore.
Under the 14 companies have been selected — 4 global and 10 Indian.