PLI for white goods to incentivise manufacturing components, boost local value addition in ACs
Nidhi Singal April 7, 2021
The production linked incentive (PLI) scheme for white goods approved by the Cabinet on Wednesday will boost local value addition as mere assembling of finished goods won't be incentivised.
"Selection of companies for the scheme shall be done so as to incentivise manufacturing of components or sub-assemblies which are not manufactured in India presently with sufficient capacity. Mere assembly of finished goods shall not be incentivized," a release from the government said.
"Currently ACs come with 25 per cent local value addition and with the current PLI scheme, this can go up to 75 per cent in next 3 years. Last year, the Indian AC market was pegged at around 7.5 million units. Of this, 2.5 million units were imports, which has come down significantly due to ban on import of gas-filled ACs. I expect the market to touch 9 million this year, and of this 8-8.5 million will be manufactured locally," says Manish Sharma, President and CEO of Panasonic India, and Chairperson of FICCI Electronics & White Goods Manufacturing Committee.
While many manufacturers are drawing copper wires to aluminium foils to manufacturing heat exchangers, doing sheet metals and moulding in the factory and then producing air conditioners in the country, the material components such as aluminium, copper, printed circuit board (PCB), compressor, motors amongst other materials are sourced from elsewhere. As a lot of components still come from elsewhere, the companies will first look at going beyond assembling products.
"The Production Linked Incentive (PLI) for air conditioners (ACs) that was approved today is a step towards making India self-reliant in a category that has exponential growth potential. This scheme will bring the entire value chain on-shore and enable India to play a more significant role globally, while creating employment opportunities locally. However, towards holistic growth of the sector, it is highly desired that the finished goods are also considered for incentivising, in addition to its components, under the PLI scheme. Further, given the low penetration of this category, the domestic demand also needs to be boosted by making ACs more affordable, and that could be facilitated through reducing the GST from 28 per cent to 18 per cent. This will provide the highly desired scalability to the AC production, which in turn will enhance the sector's competitiveness," says Kamal Nandi, President CEAMA and Business Head & Executive Vice President - Godrej Appliances.
According to industry sources, the conversation around the PLI scheme for air conditioners started in May last year and just a couple of weeks later the government and industry came together to chart out an initial strategy. The PLI scheme for white goods, including air conditioners and LED lights, has a budgetary outlay of Rs 6,238 crore, and will extend an incentive of 4 per cent to 6 per cent to those manufacturing components or sub-assemblies on incremental sales of goods manufactured in India for a period of five years.
The PLI scheme is estimated to lead to an incremental investment of Rs 7,920 crore, incremental production of Rs 1,68,000 crore, exports worth Rs 64,400 crore and earn direct and indirect revenues of Rs 49,300 crore. It is expected to create an additional 4 lakh direct and indirect employment opportunities.
"We welcome this move. It will certainly boost Honourable PM's vision of Self Reliant India. This move will certainly benefit Indian AC manufacturing and will encourage industry to boost local production," says Vijay Babu, VP- Home Appliances of LG Electronics India.
The scheme is expected to be instrumental in achieving growth rate much higher than existing ones for AC and LED industries, develop complete component ecosystems in India and create global manufacturing champions in India. Manufacturers applying for the scheme will have to meet the compulsory BIS and BEE quality standards for sales in the domestic market and applicable standards for global markets. It will also lead to investments in innovation and research and development and upgradation of technology, the government said.