Government to review PLI schemes for electronics companies

NEW DELHI: The government is set to start a comprehensive review of its ambitious production-linked incentive (PLI) schemes on electronic manufacturing, officials said. The review comes amid increasing concerns that the already lowered target of $250-$300 billion for local production by 2026 may also be tough to achieve, given the pandemic and policy-related challenges.

“We have been asked to give a detailed roadmap of how to achieve the $250-$300 billion target for electronic production by 2026,” a senior government official told ET.

The official added that among the schemes, under special focus is on the one on IT hardware. This comes with the lukewarm response to the scheme with companies committing to only half the production targets aimed for.

Even mobile phone production, which is expected to contribute the bulk 40% of the target and has seen early gains, could miss the long-term targets, if issues such as GST reduction and 5G proliferation aren’t addressed, said industry executives who have met officials.

The minister of state for electronics, Rajeev Chandrasekhar, has asked officials in the ministry of electronics and Information Technology (MeitY) to figure out what needs to be done to achieve the set targets by 2026, say officials.

MeitY has been asked to especially see if tweaks are needed to make the existing PLI scheme for IT hardware more attractive, or if a new scheme needs to be floated.

The government, while announcing the policy in February this year, had set an outlay of Rs 7,325 crore to achieve a total production of Rs 3.26 lakh crore. However, the participants that included the likes of manufacturing majors Dell, Flex, Foxconn and Wistron have committed production worth only Rs 1.60 lakh crore, just about half of the target.

Apple, one of the major makers of tablets and laptops, has given this scheme a complete miss. The iconic smartphone major, through its contract manufacturers, is the primary driver of the PLI scheme for mobile phones, committing to 80% of the total exports projected through the scheme.

The policy around hearables & wearables, which are to contribute around $7 billion by 2026, is yet to see the light of day, industry executives noted.

“The $250 billion by 2026 will need many strategic pieces to come together in perfect harmony,” said Pankaj Mohindroo, chairman of India Cellular and Electronics Association (ICEA), the industry body representing mobile phone makers, the likes of Apple, and global contract manufacturers such as Foxconn and Wistron, among others.

He said that beyond strengthening mobile phone production, the country needed a product-wise focus to clock $250 billion for domestic and exports separately. “New PLI schemes, sharp reduction in GST/import tariffs on inputs and a planned move to shift the ecosystem from China and Vietnam, are key to our success,” he said.

India’s handset industry wants the GST rate on mobile phones to be cut to 12% from 18% and that on parts and components, to 5%, reasoning that the high rate has led to a rise in prices and is affecting demand. Out of the $250 billion, the largest component is local mobile phone production worth $110 billion, of which $80 billion is domestic and the balance is for exports.

“We shouldn’t hesitate to fine tune our policies,” George Paul, chief executive of Manufacturers Association of IT (MAIT) said, speaking about the need for policy tweaks to the PLI for IT hardware.

MAIT, which has Acer, Cisco, Dell, HP, Intel and Samsung, among others, as its members, has asked the government to more-than-double, both the incentive rate (currently at 2.3%) as well as the outlay.

Some stakeholders want the outlay to be raised to around Rs 20,000 crore to be attractive enough for more global players.

“When companies are looking to diversify their risk, and move out of China to India, time is of essence,” Paul said. He added that the government needed to act fast as time was running out to meet the government’s revised target of hitting the $250 billion production in electronic manufacturing by 2026.

“The decision to manufacture out of a new location takes time to plan and execute,” he said.

Under the national policy on electronics, the government had set a target of achieving $400 billion worth production by 2025. However, owing to the pandemic, the targets were revised down to $250 billion-$300 billion, and by FY26, with the scheme around mobile phones being extended by a year due to covid-related lockdowns.

Industrial, auto and consumer electronics are expected to contribute about $20 billion each. The balance is to be split between printed circuits board assembly (PCBA), strategic electronics, wearables & hearables, electronic components and LED lighting.

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