Recently, the Union Cabinet approved a PLI of Rs 19,500 crore to facilitate domestic solar cell module manufacturing. This follows a Rs 4,500-crore fund approved in November 2020. The goal is to decrease dependence on China-made panels. With this second tranche of the PLI scheme, it is anticipated that around 65GW per annum of fully and partially integrated, solar PV modules will be installed domestically.
The Significance of this Initiative
This initiative is expected to bring direct investment of approximately Rs 94,000 crore, directly creating employment opportunities for around 1,95,000 individuals and indirectly for about 7,80,000 people. It could result in significant savings for India in terms of import costs, potentially up to Rs. 1.37 trillion. Additionally, these schemes are projected to provide 70-80 GW of capacity that would serve both domestic needs and exports.
Further, the combination of PLI benefits and state incentives under the industrial policies of the State government, as well as the concessional/deferral duty schemes in customs, should enhance the Internal Rate of Return (IRR) of the project and make Indian-manufactured solar PV modules competitive in the market.
What is the PLI Scheme?
The PLI scheme, which was introduced in March 2020, was designed to increase domestic manufacturing capability, alongside higher import substitution and employment generation. The government has allocated Rs 1.97 lakh crore under the PLI schemes for diverse sectors and an extra allocation of Rs 19,500 crore for solar PV modules in the 2022-23 Budget. The scheme initially targeted three industries: mobile and allied component manufacturing, electrical component manufacturing, and medical device production.
The incentives under the scheme, calculated based on incremental sales, range from 1% for electronics and technology products to 20% for the manufacturing of critical key starting drugs and certain drug intermediaries.
Sectors and Objectives of the PLI Scheme
So far, the government has announced PLI schemes for 14 sectors including automobile and auto components, electronics and IT hardware, telecom, pharmaceuticals, solar modules, metals and mining, textiles and apparel, white goods, drones, and advanced chemistry cell batteries.
The scheme’s objectives include reducing India’s dependence on China and other foreign countries, supporting labor-intensive sectors, boosting domestic production, and increasing the employment ratio in India. It also invites foreign companies to establish their units in India and encourages domestic enterprises to expand their production units.
Challenges Facing the PLI Scheme
Some challenges faced by the PLI scheme include a lack of common parameters to evaluate the value added by companies receiving incentives. Currently, different ministries monitor the value addition of their PLI schemes without a system to compare different schemes. Moreover, the targets set for companies to qualify for incentives can sometimes be too high.
Until 2021, only 3-4 companies managed to achieve the incremental sales targets to qualify for the PLI scheme. Most domestic companies depended on one or two supply chains which were significantly disrupted. As a result, these companies failed to qualify for the incentive due to circumstances beyond their control.
Way Forward
Stagnant demand impedes investment since there are costs associated with capital and inventory holding. Hence, incentives need to go beyond manufacturing-related PLI to address demand-related challenges. Furthermore, all sectors should be considered while providing incentives, not just manufacturing. This comprehensive approach will likely lead to more successful and sustainable growth in domestic manufacturing, contributing to the overall strength and diversity of India’s economic landscape.
