Explainer: Why Modi Government Is Betting On PLI 2.0 To Boost IT Hardware Manufacturing In India?

The registration for PLI 2.0 closed on August 30.  As per the official statement released by the IT ministry, a total of 38 global and domestic players have applied for the scheme. But, the question is what is at stake that the response is being called “excellent” by the ministry. 

Production Linked Incentive Scheme 2.0 for IT Hardware or PLI 2.0 is a step taken by the Indian Government as part of Prime Minister Narendra Modi’s ambitious “Made in India” plan. To make India less dependent on other countries, especially China, the Modi government introduced production-linked incentive scheme in 2020, after COVID-19 struck the world. The scheme encouraged local manufacturing of products by giving incentives to companies on incremental sales. 

The PLI 2.0 scheme aims to develop the manufacturing ecosystem of hardware products and supply chain of components and sub-assemblies in the country. According to the Ministry of Electronics and Information Technology, the scheme will provide better flexibility to manufacturers and further incentivise growth. Under the scheme, the eligible companies will receive an incentive of around 5 percent on incremental sales of goods manufactured in India, for a period of 6 years. The scheme targets the segment of Laptops, Tablets, All-in-one PCs, Servers, and Ultra Small Form Factor (USFF). The scheme has an outlay of Rs 17,000 crore, more than double of its previous version in 2021 which had a mere incentive of 2 percent.

In support of the scheme, the government imposed restrictions on imports of laptops, tablets and computers on August 3. Consequently, importers will have to obtain a license to import these products.

Push For PLI

Counterpoint Research data suggests that around 67 percent of PCs/laptops are imported in the country. Of these imports, China solely accounts for 75 percent. Hence, when COVID-19 pandemic plagued the global economy in 2020, the Indian government found it paramount to become self-reliant. According to Ministry of Commerce and Industry, India's imports of electronic goods have been on the rise since a long time. Electronic goods imports, which were at $5,352 million in 2019-20, almost doubled to $10,382 million in 2021-22, before slightly declining to $8,785 million in 2022-23.

In 2023-24, till May, India has already imported $1,200 million worth of these goods, which shows that the numbers are not going down. Yet, the more worrying matter is the fact that since 2019, 59 percent of these imports have been sourced from China alone. Such huge dependence on a rival country makes the progress of its PLI initiative essential for India.

With the new scheme, the government sees an incremental production worth Rs 3.35 trillion and incremental investment of Rs 4,000 crore, in the next 6 years which will directly lead to employment opportunities for 75,000 people.

As a result of the previous PLI initiative, mobile phone exports of the country crossed over $3.6 billion in the first quarter of 2023-24. India’s net smartphone exports doubled to surpass $11.12 billion in 2022-23 from $5.5 billion in 2021-22. But, smartphones alone won’t be enough for India to achieve its target of $120 billion for export of electronic goods. Thus, the government has revised the scheme to boost exports along with local manufacturing.

What’s the upgrade?

The criticism faced by the previous PLI scheme was that while it did contribute to an increase in exports of the country, it also put pressure on imports of the parts used in the production of the goods exported. Former RBI Governor, Raghuram Rajan, then suggested that the scheme was not all good that it claimed to be. Pointing out to a data that showed a significant increase in imports of semiconductors, PCBAs, displays, cameras, and batteries, Rajan had argued that India became more dependent on imports after the scheme rolled out.

In response to his criticism, CounterPoint Research said in favor of the scheme that it is a step in the right direction and part of a long-term plan. The argument that the scheme was part of a process, which first focuses on attracting big players to assemble their goods in India and then followed by increasing local production of components, was supported by many experts.

Apparently, the PLI 2.0 scheme seems to have narrowed the scope of this debate stretching any further, with its emphasis on deepening the manufacturing ecosystem this time. Not just on goods, but the new scheme focuses on local manufacturing of components, to develop the supply chain within the country.