Budget Outlays for PLI Scheme may Rise
Given the success of the scheme as seen by the growth of Apple and Samsung production, govt might up the ante once again
Once bitten, twice shy is a cliche that appears to have bypassed the Union Government. At least insofar as the productivity-linked incentive (PLI) scheme goes. Having seen Apple and Samsung bite before, the government could be actively considering a hike in PLI scheme budgets for FY 2024.
Apple now produces more than 85% of its local smartphone sales in India as against importing more than 90% from across the border in China two years ago. Government data showed that its contract manufacturers led by Foxconn, had used the PLI scheme the best since its launch in October of 2020.
Additionally, the Cupertino-based tech giant created 150,000 direct and indirect jobs in India since August 2021 and ensured that the country’s handset exports rebounded strongly. In fact, per current estimates India’s mobile handset exports for FY 23 could well rake in beyond $9 billion, all thanks to their PLI scheme utilization.
Higher allocations for PLI does make sense
Given this export-oriented manufacturing success, the government could well top up allocations for the PLI scheme in the upcoming union budget. What’s more, we could see some new sectors getting included into the program to reignite the manufacturing sector growth through fresh investments that could further boost exports.
A report published in the ET quoted unnamed sources to suggest that allocations could go up for electronics and IT hardware. Readers may recall that the government had announced Rs.1.97 lakh crore for the PLI scheme in the last budget that now covers 14 sectors. In addition, the incentives for the next five-year period could also get hiked.
This is not surprising as a recent report had suggested that Apple itself was keen to expand its offshore production capabilities beyond mobile handsets. The company could soon start off making Macbooks, iPads and AirPods in India, which ties up well with the speculation over an increased budgetary allocation for the PLI scheme. It had earmarked Rs.7,500 crore for IT equipment, which could get substantially bumped up in the next budget.
A scheme that has measurable ground impact
The latest news report said overall allocation under the PLI scheme could grow as it has been a big success insofar as measurable on-ground impact is concerned. Speculation is that the number will go up by a sharp 20 to 30% in the FY 2024 budget that would be presented by Finance Minister Nirmala Sitharaman on February 1.
The reasons are quite obvious. On the one hand New Delhi is sending a clear message to global tech players that India could be a viable option for supply chain diversification, on the other it also aims to improve the balance of payments position of its finances by promoting global exports from its shores.
Market analysts believe that these measures would also encourage private investment in some focus areas. However, industry sources that we reached out to indicated that while the PLI scheme itself is a winner, the government may have to grant lower corporate tax rates for any new investments in these areas.
On another note, they also feel that the PLI scheme is ideal for setting aside funds, given the nature of the payouts. Since these are back-loaded, they are unlikely to mess up with the government’s budgetary calculations.
