01 March 2021

Production Linked Incentive Scheme approved for Pharmaceuticals and IT Hardware

The Indian Union Cabinet has recently approved the Production Linked Incentive (‘PLI’) Schemes for pharmaceuticals and IT hardware. The schemes propose production linked incentives to boost domestic manufacturing and attract large investments in India.

PLI for pharmaceuticals

The incentive scheme for pharmaceuticals seeks to incentivize the global and domestic players to enhance investment and production in diversified product categories and specific high value goods such as bio-pharmaceuticals, complex generic drugs, patented drugs or drugs nearing patent expiry and cell based or gene therapy products etc.

The total quantum of incentives of about INR 15000 crore will be divided among three types of manufacturers – manufacturers having Global Manufacturing Revenue in FY 2019-20 above INR 5000 crore, between INR 500 crore and INR 5000 crore and those with such revenue less than INR 500 crore.

As per the press release of the Union Cabinet issued on 24 February 2021, it seems the larger part of the incentive (INR 11000 crore) will go to big pharmaceutical companies, i.e. those having Global Manufacturing Revenue equal to or above INR 5000 crore. The press release also states that incentive allocated to Group B applicants (companies with global manufacturing revenue from INR 500 crore to INR 5000 crore), if left underutilized can be moved to Group A applicants (those with such revenue above INR 5000 crore).

Pharmaceutical goods have been divided under three categories for this. While Category-1 will include biopharmaceuticals; complex generic drugs; patented drugs or drugs nearing patent expiry; cell based or gene therapy drugs; orphan drugs; special emptycapsules like HPMC, pullulan, enteric etc.; complex excipients; phyto-pharmaceuticals: other drugs as approved, Category-2 will cover active pharmaceutical ingredients / key starting materials / drug intermediates. Category-3 will cover drugs not covered under Category 1 and Category 2.

Rate of incentive will be 10% (of incremental sales value) for Category 1 and Category 2 products for first four years, 8% for the fifth year and 6% for the sixth year of production under the scheme. For Category-3, the rate of incentive will be 5% for first four years, 4% for the fifth year and 3% for the sixth year of production under the scheme. Financial Year 2019-20 shall be treated as the base year for computation of incremental sales of manufactured goods.

PLI for IT hardware

The Union Cabinet press release dated 24 February, issued for the IT hardware sector, acknowledges the fact that the market for IT Hardware is dominated by 6-7 companies globally which account for about 70% of the world’s market share and that there is a huge import reliance for IT hardware including laptops, tablets, all-in-one PCs, and servers.

The Scheme will provide an incentive of 4% to 2% / 1% on net incremental sales (over base year i.e. FY 2019-20) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of four years. The total cost of the proposed scheme is around INR 7350 crore.

As per the press release, the scheme is likely to benefit 5 major global players and 10 domestic companies.

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