From ACs to LED lights, what the PLI booster dose can do for India’s white goods sector

The domestic manufacturing industry, across sectors, has been abuzz with the term ‘PLI’ recently.

In line with its ‘atmanirbhar’ vision, the Government has announced various Production Linked Incentive (PLI) schemes in the recent past. The objective of these schemes is to incentivise domestic manufacturing of products in India. One of the sectors eligible for benefits under the PLI Scheme is the white goods sector, which covers components of air conditioners and LED lights.

The Government has been ambitious in rolling out large sums for incentivising manufacturing in India. For the white goods sector also, the Cabinet has allocated a whopping amount of Rs 6238 crore.

This incentive will be provided at the rate of 4%- 6% on incremental sales (net of taxes) to an eligible manufacturer who fulfils the required conditions. This percentage will be calculated on the incremental sales made by the applicant in comparison to sales in FY 2019-20. Also, a minimum investment threshold has also been provided which needs to be met each year.

The target segments which have been notified under the scheme are as under:

1. Air conditioners:

  • Air conditioner (components- high value intermediates or low value intermediates or sub-assemblies or a combination thereof)
  • High value intermediates of ACs (copper tubes, aluminium foil and compressors)
  • Lower value intermediates of ACs (PCB assembly for controllers, BLDC motors, service valves and cross flow fans for AC and other components)

2. LED Lights:

  • LED lighting products (core components like LED chip packaging, resisters, ICs, fuses and large-scale investments in other components etc.
  • Components of LED lighting products (like LED chips, LED drivers, LED engines, mechanicals, packaging, modules, wire wound inductors and other components)
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The notification expressly provides that mere assembly of finished goods will not be eligible for benefit under the scheme. Therefore, it seems clear that the intent of the Government is to incentivise backward integration in the white goods sector.

An interesting issue point that emerges from the notification is with respect to the eligibility of a company to opt for one target segment only for the same product. In other words, it appears that for a single product manufactured by an applicant, only one application can be filed. However, separate group companies may apply for different target segments. In our view, if a product is covered under two or more PLI schemes, benefit can be availed under one PLI scheme only which is more specific and in line with the intent of the PLI. For example – for a company which manufactures air conditioners to be used in automobiles, benefits for such air conditioners cannot be claimed under this current PLI scheme since the intent does not appear to cover such kinds of goods.

Further, for AC components, the scheme provides for benefit on sub-assemblies or components or combination thereof. This gives the option to an applicant to opt for a combination of products as well. For a manufacturer engaged in the production of more than one type of component, benefit can be availed for such combination as well. Also, the target segments cover ‘other components’ as well and hence, even if a component is not specifically covered in the notification, the applicant would be covered under ‘other components’ and still be eligible to claim benefits under the scheme.

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Even though the scheme covers only components and not any assembly of finished goods, all is not lost for finished goods manufacturers in India. The finished goods manufacturers may consider it as an opportunity to expand their business through backward integration. Various finished goods manufacturers may be interested in setting up component manufacturing so that the Company may be an end-to-end manufacturer for the components as well as the finished goods. In such a situation, it appears that benefit shall be available for in-house consumption as well. The intent of the Government is clear, i.e., to incentivise backward integration.

An open point which can be thought of from a practical standpoint is that in case of components covered under a target segment where PLI is eligible, if such component is further used to manufacture another component which is also eligible, the scheme is not clear on whether incentive for second manufacturer would be eligible on value added portion only or on complete incremental sales value. Clarity on these lines from the Government would help the manufacturers to plan better.

Overall, the PLI scheme for white goods is a welcome move and promises much needed benefits for the white goods sector. Once detailed guidelines are issued, applicable companies can opt for the scheme and truly meet the vision of an ‘atmanirbhar’ bharat.

The writer is Partner – Indirect Tax, EY India.


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