Since only two of the fourteen companies met their first year (Fiscal Year 22) incremental sales target under the IT Equipment Manufacturing Incentive (PLI) scheme, the government initiated negotiations with industry players for a complete upgrade.
Sources said the scheme did not produce the desired results, and selected firms expressed dissatisfaction with the current incentive structure.
While among the global applicants, only Dell was able to meet the first year goal, among the local players, Dixon Technologies is considered to be up to the task.
That the scheme did not impress the major global companies is evident from the fact that Dell, which was one of the few global majors to opt for the scheme, only agreed to claim benefits for the first two years of the four-year period.
To be sure, Dell already had a manufacturing presence in India prior to the announcement of the PLI scheme for IT equipment, so it did not require the transfer of the production chain from China, as was the purpose of the scheme.
Apple, the largest global company participating in the PLI scheme for smartphones, did not opt for IT equipment.
Sources said the government now realizes it has had scant consultation with the industry and has largely replicated the PLI model for smartphones. The problem with this approach was that in the case of smartphones, the country was already generating $27 billion in manufacturing during the PLI scheme. However, in the case of IT equipment, the value of invoiced products was only $0.5 billion.
On March 3, 2021, the government notified the IT Equipment PLI Scheme, under which 14 companies were selected. Global companies included Dell, ICT (Wistron), Flextronics, and Bharat FIH, formerly known as Rising Stars Hi-Tech (Foxconn), which made laptops, tablets, all-in-one personal computers (PCs) and servers. In the domestic category, 10 companies were approved, namely Lava, Dixon Technologies, Infopower Technologies (JV Sahasra and MiTAC), Bhagwati (Micromax), Neolync, Optiemus, Netweb, Smile Electronics, VVDN and Panache Digilife.
Under the scheme, international companies must register net additional sales of Rs 1,000 crore to be eligible for a 4% cashback incentive in the first year, while the target for local companies was Rs 50 crore.
However, problems arose from the very beginning. When the government announced the scheme on February 24, 2021, the costs were fixed at Rs 7,350 crore over a four-year period. During this period, the government has estimated production at up to Rs 3.26 trillion, of which exports are expected to be in the order of Rs 2.45 trillion. Later that year, on May 4, when the government announced the names of companies applying for the scheme, the production target was reduced to Rs 1.60 trillion, of which exports would be in the order of Rs 60,000 crore. Since the incentive structure is based on reaching a minimum incremental sales threshold, during the base year up to the maximum cap, when companies committed to declining performance, the Rs 7,350 crore cost was automatically halved.
IT hardware manufacturers have blamed this on the low incentive structure, which averages 2-2.5% over a four-year period, and does not justify moving units out of China or Vietnam, especially for hardware products where import duties are zero as they fall. on information technology products. The PLI mobile phone incentive structure, which went into effect in August 2020 and allowed companies to commit up to the cap, is around 4.5% over a five-year period.
Industry leaders believe that the ideal compensation structure for IT equipment should be in the 7% to 8% range.