PLI Scheme Extension Provides A Breather But Electronics Supply Woes Persist

India’s decision to extend the production-linked incentives for electronics manufacturers by a year will help companies meet targets to avail benefits as the pandemic caused shortage of semiconductor chips to raw materials globally.

Manufacturers were allowed to claim 6% incentive for incremental manufacturing in its first year—2020-21. Now they have the option to choose 2021-22 as the starting year to claim subsidy. The five-year scheme, intended to last till 2024-25, will now lapse in 2025-26.

“The extension would mean that a lot of companies will now be able to take the benefit of the scheme which otherwise would have been a washout for most of them,” Kunal Chaudhary, partner at EY India, told BloombergQuint over the phone. The additional year will help also provide flexibility to firms that have met targets for the ongoing financial year, he said.

India had shortlisted 16 domestic and global electronics makers to promote large-scale manufacturing in the country. It also offers incentives to firms in sectors like automobiles, solar panels, textiles, specialised drugmakers, among others.

Two companies availed the first-year incentive by meeting investment and sales criteria, a government official told BloombergQuint on the condition of anonymity as details are not public. South Korea’s Samsung Group was one of them.

Automakers to consumer electronics were badly hit by the shortage of chips that control everything from speed to power. Disruptions in production increased freight costs, delayed shipments.

In FY21, nobody will be meeting the thresholds because of the supply-chain constraints on display and microprocessors, Atul B Lall, chief executive officer at Dixon Technologies Ltd., had said during the company’s investor call in February.

Citing the same issues, Sanjeev Agarwal, chief manufacturing officer at Lava International, said, “We all had demanded to extend the PLI."

According to Tarun Pathak, research director at Counterpoint Research, companies are able to source only around 12% of their components from within the country and depend on imports for the rest. “If everything goes as planned with pandemic driven demand, including pent-up demand, the extension could give the much-needed push to the industry to scale immediately, and localise further.”

Supply crunch persists for mobile phone makers. The lead time for procurement, Pathak said, is up four to fivefold and the prices have jumped 15-20% for certain components.