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PLI 2.0: Could Global Markets Count on India for IT Hardware?

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India's PLI 2.0 scheme is promising global investment into its IT hardware market after 27 countries received approval from the center. This signals an acceleration in the nation’s efforts, among others, in international trade over hardware by cementing its position in the global supply chain. While countries are sluggish due to turmoil in the global economy with the near-flat gross domestic product (GDP) and high inflation this year, IT spending is believed to remain healthy, especially in India.

A global market analysis from Gartner, Inc. predicts that IT spending will reach $4.6 trillion in 2023, a 5.5 percent rise from 2022. For India, the IT spending is projected to total $124.6 billion on information technology in 2024, a 10.7 percent rise over 2023. The reason is that India is already burning the oil to rise as one of the fastest-growing markets for the IT hardware industry. The credit goes to initiatives such as the PLI (Production Linked Incentive) scheme for IT hardware, including a strong demand that is bound to attract top global companies to consider making manufacturing investments in the country.

Following the lukewarm response of the first version of the PLI Scheme for Large Scale Electronics, which aimed to increase mobile manufacturing in India, PLI 2.0 for IT hardware was introduced. Today, Dell, HP, Lenovo, and Foxconn are among the 27 countries that have received approval from the Centre to manufacture laptops, computers, and servers in India under the scheme. More than 40 companies had applied to be part of the scheme by the end of August, while Apple decided to skip it. Likewise, the indigenous manufacturing work seems to be paying off, particularly in the production of laptops.

Statistics Indicate Increase in Import of IT Hardware
The Ministry of Commerce and Industry released data in the first three quarters of 2022 that showed that about 73 percent of India's total laptop imports originated from China. Between January and September of 2022, India's imports of laptops increased to $5.24 billion, of which $3.82 billion came from China alone. According to the research, this is a nine percent increase over the $3.5 billion in laptop imports from China during the same period in 2021.

How did it Increase?
Since it was originally approved in 2021 with an expenditure of Rs 7,350 crore, the Center has more than increased the IT Hardware PLI to Rs 17,000 crore with a six-year lifespan as of May. Only two businesses, Dell and Bhagwati, were able to satisfy the first year (FY22) requirements under the original iteration of the scheme, and the sector demanded a revised version with a larger budgetary outlay. Likewise, there are more than 40 companies signed up for the scheme now.

What the New Version of the Scheme Offers to Companies
But instead of the initial estimate of Rs 4,000 crore over these many years, the chosen companies will invest only about Rs 3,000 crore (about Rs 500 crore a year on average) over six years. Over the program's whole duration, 50,000 direct jobs and 1,50,000 indirect jobs are anticipated to be created, with a net production value of Rs 3.5 lakh crore. The initiative provides an incentive of up to Rs 4,500 crore for global companies, Rs 2,250 crore for hybrid (global/domestic) companies, and Rs 500 crore for domestic companies. The incentive is applied to net incremental sales of manufactured products above the base year.

Furthermore, earlier this month, the government changed course and stopped placing physical constraints on IT goods, such as laptops and computers, by implementing an ‘import management system.’

It was designed following extensive consultations.

Another Ally to Boosting the Indigenous IT Hardware Production
It is claimed that the import authorization procedure will be automated by this digitized system. Companies will have to register the details of their imports, such as the amount and quantity. This program is thought to be a step toward a possible licensing requirement for these imports, a suggestion that has previously alarmed companies and even the governments of China and the US. The main objective? Bolstering indigenous production and combating cyberattacks.

The system's goal is to digitize the customs clearance procedure. It was designed following extensive consultations. The validity of approved import approvals will last until September 2024. According to reports, the system's automatic and user-friendly features give the government the information it needs to guarantee India's digital ecosystem is reliable.

What Were the Previous Import Restrictions?
The industry reacted strongly when the government stated in August that it would be imposing limitations on the import of specific devices. But by October, the emphasis had changed from limitations to observation.

The US responded by expressing worries about the effects on tech behemoths like Apple and Dell. China also voiced concerns at the World Trade Organization, as it is a significant exporter to India.

Meanwhile, leading trade associations for the electronics sector have praised the new setup, anticipating a seamless registration procedure and prompt import permits.

After examining the system's statistics, the government will determine the next course of action after September 2024. With India's enormous market potential and the government's encouragement of domestic manufacturing, several experts predict that the licensing need may return.

India is essentially being cautious about maintaining a balance between its domestic interests and its foreign relations, even while it is eager to support local industry.

Back to the new PLI scheme. While the government and industry applaud the PLI paradigm's achievements, some voices remain concerned.

Critique Remarks of the PLI Scheme
Former Reserve Bank of India Governor Raghuram Rajan discussed the limited usefulness of PLI schemes as a gauge of India's industrial strength. According to his argument, PLI schemes should be evaluated in light of the amount of real manufacturing (as opposed to assembly) that has occurred in India, the jobs created, and the long-term stickiness of the investments made (that is, whether major global electronics companies move their supply chains to India). He argued that, among other things, giving incentives to the biggest electronics corporations in the world was the wisest use of tax dollars.

The government did respond to his queries by reviewing existing PLI schemes, which are said to not be seeing the same level of success as the electronics PLI. Rajeev Chandrasekhar, Minister of State, MeitY, argued that the assembly was the first step towards manufacturing, only 20 percent of the $ 44 million worth of mobile phones produced were eligible for PLI incentives, and that the data used for the first piece was deliberately misleading.

Hence, the question still remains: Is PLI the best way to solidify India’s manufacturing revolution?

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