Regulatory Alert: Incentive Schemes for manufacturing of Electronics / Electronic Components / Semiconductors

The Ministry of Electronics and Information Technology (‘MeitY’) has issued notifications on 01 April 2020 to introduce two incentive schemes for companies engaged in the manufacture of electronic products. They are as given below:

1. The Production Linked Incentive (‘PLI’) Scheme – This scheme focuses on providing incentives of 4% to 6% on incremental sales to eligible companies

2. The Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (‘SPECS’) – This scheme focuses on providing incentive of 25% of the capital expenditure made by eligible entities

Key features of these Schemes are summarised below:

THE PRODUCTION LINKED INCENTIVE (‘PLI’) SCHEME

• Objective: The objective of introducing the PLI Scheme is to provide financial incentives in order to:
  • boost domestic manufacturing, and
  • attract large investments in the electronics value chain, including electronic components and semiconductor packaging
• Target Segments: The PLI Scheme is applicable to companies engaged in the following segments only:
  • Mobile phones
  • Specified Electronic Components, which are listed below:
    • SMT Components
    • Discrete semiconductor devices including transistors, diodes, thyristors etc.
    • Passive components including resistors, capacitors etc. for electronic application
    • Printed Circuit Boards (PCB), PCB laminates, prepregs, photopolymer films, PCB printing inks
    • Sensors, transducers, actuators, crystals for electronic application
    • System in package (SIP)
    • Micro/Nano-electronic components such as Micro Electromechanical Systems (MEMS) and Nano Electromechanical Systems (NEMS)
    • Assembly, Testing, Marking and Packaging (ATMP) units
• Eligibility criteria:
  • The scheme is applicable to companies, registered in India, engaged in the manufacture of the above-mentioned Target Segments in India (including ‘Contract Manufacturers’)
  • Eligibility under the PLI Scheme shall not affect eligibility under other schemes, and vice-versa
  • The eligibility is subject to cumulatively fulfilling the following threshold limits, in relation to Incremental Investment and Incremental Sale of Manufactured Goods (in the Target Segment):

¹ For eligibility, all Incremental Sales of Manufactured Goods (covered under Target Segment) irrespective of invoice value to be considered

² Domestic Company above-mentioned is as per the FDI Policy, 2017- Domestic company is a company owned by resident Indian citizens. A company is owned when more than 50% of capital is beneficially owned by Indian citizens or Indian companies which are ultimately owned and controlled by resident Indian citizens

• Quantum of Incentive:
  • Eligible companies shall receive incentive at the rates (mentioned in the table above) on the incremental sales over base year (base year being FY 2019-20) of goods which are manufactured in India (covered in the target segment).
  • Further, the maximum incentive received by every company shall be subject to ceiling limit, which shall be decided upon by the Empowered Committee
• Tenure of the Scheme:
  • This incentive is offered to eligible companies for a period of 5 years subsequent to the base year
  • The application for the scheme shall be initially opened for a period of 4 months, starting from 01 April 2020
  • Based on the response received from the industry, the MeitY may consider reopening the application, in which case, the applicants shall be eligible for incentives only for the balance period of the tenure of the Scheme
• Application and Disbursement process:
  • An initial application needs to be submitted to the Nodal Agency before the due date (i.e., 31 July 2020)
  • Out of set of the applications received by the Nodal Agency, the eligible applications shall be appraised on an ongoing basis and will be considered for approval
  • Incentives shall be disbursed to eligible companies who have complied with the required thresholds
  • Incentive under this scheme shall be applicable from 01 August 2020
• Nodal Agency:The PLI Scheme shall be implemented through a Nodal Agency, which will act as a Project Management Agency (‘PMA’) to carry out the responsibilities as directed by the MeitY. It will be responsible for the following:
  • Appraisal of applications and verification of eligibility
  • Examination of eligibility claim to provide incentives
  • Compiling data regarding process and performance
• Empowered Committee (EC): An EC shall be formed comprising of CEO of NITI Aayog, Secretary of Economic Affairs, Secretary of Expenditure, Secretary of MeitY, Secretary of Revenue, Secretary of DPIIT and DGFT, which shall perform the following primary functions:
  • consider the eligible applications as sent over by PMA for approval
  • consider the claims for disbursement to the eligible companies on the recommendation of the PMA
  • conduct a periodic review of eligible companies regarding the investment, employment generation, production and value addition
  • revise incentive rates, ceilings, target segments and eligibility criteria as deemed appropriate

THE SCHEME FOR PROMOTION OF MANUFACTURING OF ELECTRONIC COMPONENTS AND SEMICONDUCTORS (‘SPECS’)

• Objective:

To help offset the disability for domestic manufacturing of components and semiconductors and strengthen the electronics manufacturing ecosystem in the country

• Eligibility:

The SPECS Scheme will be applicable to investments in new units as well as expansion of capacity/ modernisation and diversification of existing units by any entity registered in India

• Incentive under SPECS:
  • Incentive of 25% on capital expenditure to units making investment for eligible goods in the form of reimbursement
  • Incentives, if any, by State Government, or any of its agencies or local bodies shall be available over and above the incentives under the SPECS scheme
  • Applicant shall also be eligible to take benefit under any other scheme of Government of India except M-SIPS scheme for which investment has been committed and incentives have been claimed
• List of eligible goods for incentive along with Minimum Investment Threshold:

• Capital expenditure eligible for incentive:
  • Total expenditure in plant, machinery, equipment, associated utilities and technology, including for Research & Development (R&D)
  • Total value of refurbished plant, machinery and equipment (including for associated utilities and R&D), whether imported or domestically procured, not exceeding 20% of the total eligible plant, machinery and equipment (including for associated utilities and R&D)
• Tenure of the scheme:
  • The SPECS will be open for applications initially for 3 years from the date of notification
  • Incentive will be available for investment made within 5 years from the date of acknowledgement of the application
• Approval and disbursement process:
  • Only single-phase project applications will be considered under SPECS i.e. phase-wise applications will not be considered under the Scheme
  • There is no restriction on any applicant from making multiple applications and/or for multiple locations
  • Initial incentive shall be released post approval of application. Claims for subsequent incentive can be submitted on a six-monthly basis
  • The unit receiving incentive under SPECS will have to remain in commercial production for a period of at least 3 years from the date of commencement of production or 1 year from the date of receipt of last incentive, whichever is later
• Governance mechanism for SPECS:
  • SPECS to be implemented through a nodal agency acting as PMA. PMA shall be responsible for providing secretarial, managerial and implementation support. Further, PMA to perform tasks involving receiving the applications, examining disbursal claims and disbursing incentive, submit periodic reports to MeitY, etc.
  • The applications found eligible will be put by PMA before the Executive Committee (EC) which shall be constituted by MeitY. EC will recommend to PMA for approval/ rejection / modification of the applications
  • The progress of the Scheme will be reviewed through a Governing Council (GC) to be constituted by MeitY. GC will be authorised to carry out amendments in the scheme guidelines from time to time for successful implementation of the scheme

BDO Comments

• The PLI Scheme shall act as an impetus for growth of domestic manufacture of electronic products/ components in India. By providing financial incentives, the domestic manufacturers shall be able to cope with several disabilities faced in the industry. This scheme is likely to attract investments in the domestic electronic sector and enable domestic manufacturers to deal with rapid changes in technology. 
• A vibrant electronic component manufacturing ecosystem is vital for the overall long-term and sustainable growth of electronics manufacturing in India. However, manufacturing electronic components and semiconductors is capital intensive and must deal with constantly changing technology. In view of that, the SPECS scheme, by providing capital incentive, is expected to aid the domestic manufacturing of components and semiconductors and ultimately strengthen the electronics manufacturing ecosystem in the country.

To know more about the Schemes, please feel free to write to us.