PLI Scheme (Production Linked Incentive Scheme)
The government wants to broaden the scope of the PLI scheme ( Production-linked Incentive Scheme) to encompass as many manufacturing sectors as possible. In addition to reducing imports, the PLI scheme aims to meet rising demand in the domestic market.
What is the production-linked incentive scheme (PLI Scheme)
In March 2020, the central government established a scheme aimed at giving enterprises incentives for incremental sales from products created in local units, to stimulate domestic production and reduce import bills. Aside from encouraging international corporations to set up shop in India, the initiative also attempts to encourage domestic enterprises to open new manufacturing units or expand existing ones.
So far, the strategy has been implemented in a variety of manufacturing sectors. These industries are labor-intensive, and the aim is that they would produce new opportunities for India’s rapidly growing employable workforce.
“The objective is really to make India more compliant with our WTO (World Trade Organisation) commitments and also make it non-discriminatory and neutral concerning domestic sales and exports,” Rajat Kathuria, director and chief executive of policy think-tank Indian Council for Research on International Economic Relations (ICRIER) stated.
Why is it necessary to have a production-linked scheme?
According to experts, the PLI scheme is important because the government cannot continue to invest in these capital-intensive sectors because they take longer to pay off. Instead, it should invite foreign corporations with sufficient capital to set up operations in India.
The former grant of Rs 4,500 crore would enable the production of 10 GW of solar modules, which would require a direct investment of Rs 12,000 crore. The PLI scheme’s investment and domestic production capacity would grow even further with the enhanced allocation of Rs 19,500 crore. “For quite some time now, India has been importing 70-80% of solar cells and modules. Solar cell wafers are supplied from China, Taiwan, and Southeast Asian countries, according to PwC India’s Amit Kumar, Partner and Leader – Power and Utilities, Mining.
How this PLI Scheme will Help Domestic Solar Cells & Modules Manufacturing
To make India an exporting nation, the Finance Minister of India announced this initiative in February 2022, increasing funding under the PLI scheme for domestic solar cells and module manufacture to Rs 24,000 crore from Rs 4,500 crore.
During the Budget speech in the Lok Sabha, the Finance Minister of India Mrs. Sitharaman stated, “An additional allocation of Rs 19,500 crore for PLI scheme for manufacturing of high efficiency (solar) modules with the priority of fully integrated manufacturing units for polysilicon to solar PV modules will be made to facilitate domestic manufacturing for the ambitious goal of 280GW of installed solar capacity by 2030.”
The Union Cabinet authorized a Rs 4,500 crore production linked incentive (PLI) scheme in April 2021 to expand domestic solar PV module manufacturing capacity.
The program aimed to build 10,000 MW of integrated solar PV module manufacturing capacity, requiring a direct investment of Rs 17,200 crore at the time (existing).
The volume of investments and local manufacturing capacity envisioned under the PLI program would expand further with the increase in funding to Rs 24,000 crore.
The PLI scheme, which was approved by the Union Cabinet, was designed to reduce import dependence in a critical industry like electricity.
Who will get PLI incentives and how?
The PLI scheme aims to reduce import reliance in the strategic solar energy industry. Solar PV manufacturers are chosen through a transparent competitive bidding process, after which the PLI will be paid out for five years after the solar PV manufacturing plants have been commissioned, based on sales of high efficiency solar PV modules. The Indian Renewable Energy Development Agency Ltd, a government-owned company, is seeking bids (IREDA).
“Since it’s a production-linked incentive, companies manufacturing from stage-I, that is, starting from polysilicon all the way up to modules, will get higher chances of being successful and more incentive as compared to the ones starting from wafers or cells. This is the reason why most players in the first phase including Reliance, are manufacturing from polysilicon stage. Also, the PLI amount will increase with increased module efficiency and increased local value addition,” according to the official.
According to rating agency ICRA ( Investment Information and Credit Rating Agency of India), the cost of imported solar modules is currently around 24 Euro cents per watt peak (Wp), compared to around 30 Euro cents per Wp in the domestic market, due to the 14.5 percent levy on imports of solar cells and modules. This gap is likely to be covered to some part by the application of a Basic Customs Duty (BCD) structure for imported solar cells and modules, which was announced in March 2021, while the remaining gap is likely to be filled by the existing PLI system.
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