PLI Scheme 2.0 for Hardware

India today approved a second production-linked incentive scheme with a budgetary allocation of Rs,17,000 crore. This time it is directed at the IT hardware sector, given that electronics manufacture in the country has grown at 17% CAGR over the past eight years to cross the benchmark value of $105 billion in 2023. 

Announcing the scheme, IT and Telecom minister Ashwini Vaishnaw said, the program would be for six years and covers laptops, tablets, all-in-one PCs, servers and ultra-small form factor devices. He said the scheme would lead to incremental production of Rs.3.35 lakh crore and investments of Rs.2,430 crore while directly employing over 75,000 people. 

PLI schemes for hardware didn’t start off well

In February 2021, the government had approved the first PLI scheme for IT hardware covering production of laptops, tablets, all-in-one PCs and services with a budgetary outlay of Rs.7,530 crore, which the industry had felt was too small to be attractive. This step followed the first PLI scheme in April 2020 for smartphone production, which has since resulted in India grabbing second place behind China in this category. 

In a chat with Business Standard, Vaishnaw said he had met executives of HP, Dell, Acer and ASUS who were all keen to invest in India, given the fast-maturing contract manufacturing process in India. The aim is to replicate what India did on the smartphone models by getting global players to shift capacities to India from China. 

The minister further underscored the need to shift from the 1990s mindset of import substitution towards export-led growth. The electronics industry grew at 17% CAGR over six years and crossed $100 billion in revenues. So, now the focus has to shift towards exports that will provide the necessary mass to build an India-centered supply chain system. 

The semiconductor hub story is also warming up 

Meanwhile, another report published in ET, said the government was close to approving the Foxconn-Vedanta chipset manufacturing plan under its $10 billion Indian semiconductor mission. The article quoted unnamed official sources to suggest that the plant would fabricate 40 nm chips which would be approved as soon as the promoters fulfill some formalities. 

This could set off the country’s efforts to establish itself as a global hub for semiconductors, once again at the cost of neighbors China. 

The early birds are here, others are set to follow

The report said the joint venture company Vedanta Foxconn Semiconductors Ltd has signed some agreements for technology transfer with GlobalFoundries and STMicroelectronics. It said the government has sought a binding technology transfer agreement with either of them in order to process the application and provide necessary approvals. 

The joint venture company has a 63:37 percent ownership between Vedanta and Taiwan’s Hon Hai Precision Industry (Foxconn). It shared plans to invest up to Rs.66,000 crore initially to set up the manufacturing facility at Dholera in Gujarat, post which it would more than double its investment to expand capacity and also create a display fabrication unit. 

On its part, the government has offered a 50% subsidy to selected applications under its scheme to kickstart manufacturing of chipsets in the country. Besides the Vedanta-Foxconn proposal, it has also received bids from Next Orbit Ventures that partnered with Israel’s Tower Semiconductor and also from Singapore-based IGSS Ventures. 

Given that Tower Semiconductor is in the process of being acquired by chipmaker Intel, it may not be far before others from the global market make a beeline for setting up shop in the Indian market. Given that both Qualcomm and MediaTek have large stakes in the smartphone market of India, it may not be surprising if they too turn up sooner than later at the gates. 

“The Production Linked Incentive (PLI) scheme in India is a powerful catalyst that fuels industrial growth and encourages innovation. By providing targeted incentives to key sectors, it creates a favorable environment for businesses to thrive, leading to job creation and technological advancement. The recent budgetary allocation of INR 17,000 crores for IT Hardware serves as a compelling incentive for IT companies, stimulating increased production of high-quality products at competitive prices, making Indian IT products more appealing to global markets and leading to a significant boost in export revenue. This will further promote domestic production through establishment of manufacturing units and ancillary industries which in turn will also lead to increased employment opportunities” – Peeyush Vaish, Partner and TMT Industry Leader, Deloitte South Asia