Production incentive: Government can reopen PLI program for air conditioners and LED bulbs

The PLI scheme was notified on April 16, 2021 and its guidelines were published on June 4.

The government is considering a proposal to reopen the application window for the Production Linked Incentive (PLI) scheme of Rs 6,238 crore for air conditioners (AC) and LED bulbs to welcome more players in response to the unusual interest shown by this industry.

Alternatively, it can explore the possibility of opening the scheme to producers of other white goods outside the scope of the programme.

“A final decision on the matter will be taken soon,” Anil Agarwal, additional secretary at the Department for Promotion of Industry and Internal Trade (DPIIT), told FE. He acknowledged that within the framework of the budget expenditure proposed for the program, it is possible to induce more investments than what has been promised by the 42 companies already selected by the DPIIT.

The PLI program was notified on April 16, 2021 and its guidelines were published on June 4. Interested investors had until September 15 last year to apply for the program.

Some of the major CA players FE spoke to supported the idea of ​​giving another chance to those who missed the opportunity in the first place as well as the players who were selected through the program and who wish to intensify investments beyond those already committed.

Daikin India MD and Managing Director Kanwal Jeet Jawa said his company is willing to invest Rs 500 crore on top of its current PLI commitments. The company has already pledged to invest Rs 580 crore and is setting up a unit of over 75 acres at Sri City in Andhra Pradesh, he added.

Manish Sharma, managing director of Panasonic India, said his company had already made its commitments and was “currently assessing the situation”.

CP Mukundan Menon, president and chief operating officer (cooling and purification device group) of Blue Star, said that while his company may not invest more than committed, but reopen the window will surely give a chance to many others. Blue Star is investing Rs 525 crore in setting up a new facility in Sri City. Of this amount, Rs 100 crore are considered as PLI investments, Menon added.

The government had, as of November 2021, selected 42 companies – including Daikin, Hitachi, Panasonic, Voltas, Blue Star, Mettube, Dixon and Havells – which had committed investments of Rs 4,614 crore to benefit from incentives under the PLI scheme. . Six other candidates proposing foreign direct investment (FDI) have been invited to obtain the necessary approval and one of them has just obtained it.

Among the selected applicants, 26 companies pledged investments of 3,898 crores in the manufacture of components for air conditioners, while 16 will invest 716 crores in the manufacture of LED parts.

Incentives will be paid from the next fiscal year at 6% (if investments start from fiscal year 22) and will be reduced to 5% by fiscal year 25, then to 4% in fiscal year 27 .

The program is expected to increase the level of national added value in these segments from the current 15-20% to 75-80%. The selected companies will produce AC and LED bulb components which are not generally manufactured in India currently.

The program will be implemented over a period of seven years from FY22 to FY29. The government expects the program to lead to incremental production of Rs 81,254 crore and create opportunities for direct employment for 44,000 people.

The total incentives of Rs 6,238 crore will be disbursed over five years.

AC players hailed the project. Daikin’s Jawa, who is also president of the Refrigeration and Air-conditioning Manufacturers Association, said the industry was finally getting much-needed government attention. The PLI’s push aimed to boost the country’s annual production of air conditioners to 40 million in 10 years, from around four million previously. Around 75% of the country’s AC components are imported from countries such as Thailand, China and Malaysia. “That needs to change, and the LIP program is an important driver of that change,” Jawa said.

Panasonic’s Sharma said one of the key steps to boosting manufacturing and exports is backward integration. “As component manufacturing is one of the major beneficiaries of this policy, indigenous air conditioner manufacturing will get a boost, enabling design-driven manufacturing and fuel innovation, and will boost component exports as well. than finished air conditioners from India,” he added.

Blue Star’s Mukundan Menon said the program will strengthen the AC components ecosystem, which will not only boost domestic manufacturing but also exports.

Karl M. Bailey