IT hardware players to lose on PLI incentives for failing to meet targets

Under revised scheme, 5% penalty to be deducted from amount due if actual PLI figure for a year is 25-50% lower; if shortfall exceeds 50%, then penalty is 10%

The revised IT hardware production-linked incentive (PLI) scheme will include eligibility thresholds on incremental investments and sales, as well as penalties from the payable amount in case of a shortfall in the committed target.

The government on Tuesday notified the IT hardware PLI 2.0; the scheme offers incentives of up to 9 per cent on incremental sales of laptops, tablets, all-in-one PCs, servers, and edge computing devices manufactured in the country to attract investments in the sector.

According to the scheme document, every beneficiary of this revised scheme must use firmware for servers from Indian sources or other “trusted foreign sources”, as certified by the Ministry of Electronics and Information Technology (MeitY). Firmware refers to an embedded code that enables the hardware to run.

Each applicant may need to mention an estimated PLI amount for individual years, which will act as a ceiling. “To keep projection discipline in the scheme, there will be a provision for a penalty of 5 per cent from payable PLI amount if the actual PLI amount for a year is less by 25-50 per cent and a penalty of 10 per cent, if the shortfall is more than 50 per cent from the estimated PLI amount given by the applicant at the time of application,” the notification says.

The applicants may get incentive more than the ceiling for a particular year provided there is unutilised incentive available in that particular year, subject to an overall ceiling of Rs 4,500 crore for global companies, Rs 2,250 crore for hybrid (global/domestic) companies, and Rs 500 crore for domestic companies.

The new scheme will provide additional incentives for localisation of certain optional items. Localisation of semiconductor design, IC manufacturing, and packaging have been newly added to the scheme as incentivised components.

The cap on maximum incentive amount stands at Rs 4,500 crore for global companies, Rs 2,250 crore for companies with hybrid (global and domestic) production models, and Rs 500 crore for domestic companies. The incentive will depend on net incremental sales of manufactured goods over the base year of 2022-23.

Incentives shall be applicable from July 1, 2023, or April 1, 2024, or April 1, 2025, for a tenure of six years, depending on the applicant’s choice to commit incremental investment and incremental sales under the PLI 2.0 scheme. For the first year of the incentive, eligible sales will be considered for nine months, starting from July 1, 2023, for which the incentive is being claimed. The number of applications allowed per applicant for support under the scheme is restricted to 1.

The initial window for applying for incentives under the scheme will be 45 days. However, the document says this may be extended. The Industrial Finance Corporation of India (IFCI) has been appointed the Project Management Agency (PMA) for the existing PLI scheme for IT Hardware. IFCI will provide secretarial, managerial, and implementation support and carry out other responsibilities as assigned by MeitY from time to time.