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Faster release of incentives, increase in MSMEs under PLI reformulation – Budget 2024 News
The government is revamping production-linked incentives (PLI), easing the norms for release of funds, adding more sectors to the scope of the scheme and extending benefits to MSMEs in many labor-intensive sectors through special exclusions. The restructuring would also include incentives for research and development (R&D) to create an industrial ecosystem, even if the regime’s total budget is not stretched, official sources said.
Although the scheme was launched more than three years ago and covers 14 sectors, only around 5% of the allocated funds have so far been disbursed. According to sources, the government has just started accepting requests for release of incentives on a quarterly basis, compared to the previous norm of annual release of funds.
“In many departments we have already started (accepting quarterly applications)… we are telling others to toe the line,” said a senior official.
The new areas to be covered by the regime soon are toys, furniture and clothing. These sectors were identified for their job creation potential and for being driven by micro, small and medium-sized enterprises (MSME). Sources said these PLI proposals are “in various stages” but are likely to be “approved” in the coming days.
Similarly, the government could expand the scope of the PLI regime for synthetic fibers (MMF) and technical textiles to cover certain cottonclothing-based outfits too. While the current PLI regime is more suitable for large companies with higher capital expenditure, the inclusion of apparel would benefit MSMEs in the sector.
Announcements in this regard are expected in the next budget.
The only exceptions to the quarterly disbursements will be cases where the numbers are small and departments will find it difficult to do so, the sources added. PLI for food processing is one such scheme.
Previously, the scheme’s guidelines stated that applications for incentives can be submitted after the end of the financial year to which the application pertains. Annual applications can be submitted only once and within nine months of the end of the financial year.
The total expenditure for the PLI scheme is Rs 1.97 trillion, of which only Rs 9,700 crore has been disbursed till March 2024. In FY2024, Rs 6,800 crore worth of incentives have been given across various sectors.
Trade policy think tank Global Trade Research Initiative says companies must currently meet several criteria, such as investments, production, location, sales and types of inputs, to qualify for incentives. Many companies that have started production struggle to meet these criteria and lose incentives, so a review is needed.
The quarterly disbursements are expected to accelerate incentive payments because applications are expected to increase this year. The reason for greater claims would be the start or increase of production in PLI-qualified manufacturing units.
Till December 2023, around Rs 1.07 trillion has been invested by PLI companies. The investments generated incremental sales of over 9 trillion rupiah and the creation of 0.7 million jobs.
The PLI scheme was first launched in March 2020 for three products – raw material for pharmaceuticals industry, medical devices and large-scale electronics manufacturing. In November 2020, 10 more sectors were included. In September 2021, the PLI for drones was added to the list. More sectors sought inclusion in the scheme, including toys, leather and footwear.
Although the government has managed to significantly reduce toy imports with several measures, its attempts to increase its exports have not yet been successful. IndiaChina’s toy imports declined sharply to $64.9 million in FY24 from $304.1 million in 2018-19. However, exports registered a modest increase to $152.34 million in the previous fiscal year as against $129.6 million in FY20.
In the existing textile PLI, 64 selected candidates have cumulatively invested Rs 3,317 crore or 17% of the proposed investment of Rs 19,798 crore, reflecting a poor start. Investments were to take place during 2022-23 and 2023-24 and on. The incentive was to be provided from the Rs 10,683 crore allocated over five years to the companies under the scheme to achieve the investment threshold and turnover threshold and thereafter the incremental turnover.
The furniture industry in India is also dominated by MSMEs. In order to increase production and exports, the Center may extend the PLI regime to certain wooden furniture.
Companies invested around 1.07 billion rupees in two years up to December 2023 under the 14 PLI, or about 40% of the 3 billion rupees committed. However, the trend is unusual, with long delays in investments in many sectors, such as high-efficiency solar photovoltaic modules, automobiles, ACC batteries and textiles that were supposed to lead the pack. The government is reviewing the schemes to reopen some of the schemes and replace some of the schemes with new ones.