Budget 2022: Industrial incentives to further stimulate the Atmanirbhar agenda

The budget outlay for PLI schemes (currently exceeding INR 2 lakh crore) and their design are a testament to the government's intent to provide long term support to industry. Owing to this, PLI schemes are proving to be a gamechanger for the nation's investment landscape. The initiative was announced at a time when the global supply chain network was reeling under the impact of the pandemic. However, the last 18 months have seen the PLI schemes come to life, drawing attention from domestic and foreign investors alike.

These rapid developments are owing to the simplistic, outcome-oriented design of the PLI schemes. It offers investors visibility on the likely benefits thus enabling investment decisions.

In the near future, it is expected that some PLI schemes may be renewed. Similar schemes may be announced for IoT devices, wearables, chemicals etc. As the budget approaches, businesses that the PLI coverage is not only widened to additional sectors but is also deepened to accommodate specialised products across these sectors. This two-pronged focus will help plug the gaps in the manufacturing ecosystem thus truly acting as an enabler for import substitution, export promotion and employment generation which are the three pillars of Atmanirbhar Bharat.

Globally, renewable energy and research & development have become the mainstay of incentives measures. If the PLI schemes are recalibrated to include these areas (with the announcement of dedicated schemes as necessary), it will bring our incentives at par with global standards.

As the PLI schemes grew increasingly popular, investors faced some concerns which can be addressed in the upcoming schemes. In some sectors, the qualifying investment limits seemed higher than necessary to achieve the production targets. In some cases, the year-on-year sales growth targets were above industry norms, which led to some hesitation among investors.

It is also worth exploring how PLI can be made more accessible to investors. This would imply elimination of technicalities such as permitting only greenfield investments etc. A rationalisation in such criteria will create a level playing field and allow a larger pool of investors to benefit from this initiative. This will also lead to deeper percolation of the PLI benefits in each sector.

On the implementation front, measures such as online dashboards indicating application evaluation status and timely announcement of approvals may be introduced. This will lead to increased transparency and robust processing, thus adding to the credibility of the initiative.

The PLI schemes are a recent measure. However, state level fiscal incentives have long been offered in India. Together with PLI, they make for a lucrative package since investors have the option of pursuing both. A modernisation of the state incentives implementation mechanism on the lines of PLI may be explored. This will significantly reduce the compliance burden on investors and speed up the processing of incentives matters.

Close on the heels of the PLI scheme for advanced chemistry cell batteries, the signing of an agreement between the investor and the government(s) may be introduced for high stake investments. This will reinforce commitment from all stakeholders and help businesses hit the ground running. A co-ordination committee may also be set up between the Centre and the State to ensure that the processing of incentives matters takes place within the specified timelines.

In addition to fiscal incentives, the reduced corporate tax rate of 15 percent for new manufacturing entities has also been drawing several investors to India. However, the deadline to avail this tax relief (31 March 2023) is fast approaching. Considering the last two years were largely affected by the pandemic, an extension in this date will be helpful to investors.

Through these incentives and various tax relief measures, India offers a plethora of benefits to investors. By continuously monitoring the pulse of industry, the policymakers continue to make rapid strides in the creation of an investor friendly ecosystem. In the long run, this momentum would pave the way for India to gain even greater prominence in the global supply chain network.