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PLI Scheme promotes AC manufacturing in India, more measures required to accomplish the self-reliance goal

India today is emerging as a manufacturing hotspot on the global map due to the persistent push for ‘Make in India’ and ‘Atmanirbhar Bharat’. In order to accomplish ambitious developmental goals including the status of a developed nation by 2047, the country seems determined to harness the potential of resources lying within the boundary. It strives to reduce dependency on imports and produce at least the required quantity of products to meet domestic demand successfully. However, it also intends to increase the share of its exports in international trade from the current 2.1% to 3% by 2027 and 10% by 2047 while promoting hundred Indian brands as global champions.
To accomplish these goals, India emphasised on identifying roadblocks and removing them without making any delay and also reaping the benefits of its strengths. Being a nation of 1.3 billion people, it realised its immense human resource potential. Simultaneously, it also noticed the huge opportunity in the manufacturing segment, largely untapped until now. With such encouraging findings, the government decided to promote the sectors that can facilitate its goal of self-reliance while creating myriad employment opportunities for the citizens. But the question before policymakers was how to promote manufacturing? As, even after ‘Make in India’, manufacturing was not picking up desired pace. Production Linked Incentive (PLI) scheme emerged as a solution.
What is PLI Scheme
Introduced in April 2020 in line with the visions of the ‘Atmanirbhar Bharat’ mission, the Production Linked Incentive (PLI) scheme aims to provide incentives to companies on incremental sales of products manufactured locally in a domestic unit. The government under the scheme primarily aims to encourage domestic manufacturers to increase manufacturing, create employment opportunities and reduce the country’s reliance on imports. However, the government also invites international organisations to set up their units in India and enhance India’s manufacturing capacity.
Initially, in 2020, it covered Large Scale Electronic Manufacturing sector. So far, 13 more sectors have been brought under the scheme. During her budget speech this year, Hon’ble Finance Minister announced an outlay of INR 1.97 lakh crore for the PLI scheme across 14 sectors with an aim to create national manufacturing champions and generate 60 lakh employment opportunities in the next 5 years.
Recognising the capacity of the Indian AC manufacturing segment, the government included it in the PLI scheme last year and announced a whopping INR 6,238 crore for AC and LED lights. This announcement offered a much-needed impetus to AC manufacturers in the country.
Significance of PLI scheme for AC manufacturing segment
For a long time, India was dependent on imports for fully-assembled ACs and critical components, primarily from China. The country used to fulfil around one-third of the demand through imports. But, the scene started changing in 2020 when the government banned the import of these products and adopted the path of domestic production to gain self-reliance. The PLI scheme has stimulated the sentiments of domestic manufacturers.
The scheme encouraged many big players to avail the benefit of the initiative. They made big investment commitments and are developing manufacturing facilities in different parts of the country. The local value addition is expected to increase from the present 15-20% to 75-80% with the production of components. For the INR 6,238 crore incentive, an investment worth 4,614 crore has already been attracted until April, 2022.
India is a big and emerging market for AC as the penetration is very low today. The government’s steps offer an opportunity to domestic players to tap the real potential of the market, thrive and expand business globally. The AC market is expected to witness a sale of over 9.7 million units in 2023, giving manufacturers a conducive environment to expand their consumer base and boost the bottom line. From a broader perspective, this will help India reach the desired level of manufacturing while creating around 2 lakh employment opportunities. However, the industry needs government intervention to solve some other issues that obstruct its growth.
What more can be done to promote local AC production
The PLI scheme focuses on promoting component manufacturing with a provision of 4-6% incentive on incremental production. The manufacturers will receive incentives only if they add to the production of components. The purpose of this very step is quite encouraging. It emphasises on producing components or sub-assembly which are imported presently. However, the absence of incentives for incremental assembly may discourage local players who produce finished ACs. They may choose to invest in components only. This will weaken India’s strength in producing finished products. The government can think about incentivising finished product manufacturers also to ensure holistic growth of the sector.
Furthermore, to help the sector grow, it’s important to provide incentives to consumers and increase AC penetration across the country. At present, 28% GST is charged on AC. It increases the cost and discourages consumer sentiment. In a bid to make it affordable, the government can think about bringing AC into the 18% GST category. This will not only increase AC sales but also give a fillip to production due to a rise in demand. Ultimately, this will further boost manufacturing and create more employment opportunities.
(Ajay Singhania, MD & CEO – EPACK Durable Private Limited)



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