Umbrella PLI scheme proposed to replace MEIS, promote domestic manufacturing

The government proposes to introduce an umbrella production-linked incentive (PLI) scheme with an allocation of about Rs 40,000 crore to replace the existing Merchandise Exports India Scheme (MEIS) scheme introduced in April 2015 to promote manufacturing and exports of specified goods from India.

Government sources said that a high-level meeting chaired by the Cabinet Secretary is taking place on Wednesday to discuss measures to promote domestic manufacturing, undertake import substitution and thrash out details of a universally applicable production-linked incentive (PLI) and phased manufacturing programme (PMP) scheme.

Unlike the existing PLI schemes introduced by the Ministry of Electronics and IT for mobile phone manufacturing and the Ministry of Chemicals and Fertilisers for promoting bulk drug and medical device parks, the one being proposed now would be an umbrella scheme that could be adopted by any ministry that comes up with viable plan on import substitution and promotion of domestic manufacturing.

The government proposes to fund the new scheme with an initial allocation of Rs 40,000 crore in the current year with allocation rising by about 10 per cent every year depending on the need. Like the existing PLI schemes, the umbrella scheme would also be operational for a period of five years. The allocation from the scheme would from what was required under MEIS.

Sources said that the government proposes to expand the scope of PLI to cover nine or 10 more sectors including air conditioners and TV sets, leather, chemicals, furniture, tyres, toys, solar cells, auto components, capital goods, textile and food processing.

Apart from PLI, a phased manufacturing programme (PMP) will also be launched especially in areas of import substitution and where some domestic manufacturing capability exists. This would cover some electronics items, surgical instruments, sports equipment, optical and photographic instruments, and power equipment.

Under PMP, the government will look at providing duty protection to the sector for some time so that manufacturing could be established. A plan for duty increase is being looked for solar modules and cells so as to promote the domestic industry.

The high-level meeting of Group of Secretaries is expected to be attended by Secretaries of Ministries of Textile, Chemicals and Fertilisers, Commerce, DPIIT, Telecom, IT, Heavy Industries, MSME, Finance, the NITI Aayog CEO and others having linkages with India's exports.

The government is phasing out MEIS by December this year as it did not yield the desired result. Even with liberal application of scheme across sectors, the exports remained nearly stagnant.

The liability under MEIS ballooned to from Rs 20,000 crore to about Rs 45,000 crore in 19-20, reaching an unsustainable level. However, during the period, the country's exports remained range-bound. In 2014-15, Indian exports were $310 billion and in 2019-20, the export figure was $313 billion. So, the Finance Ministry has restricted MEIS benefits to just Rs 9,000 crore in FY21 and plans to use the savings for the sector focused PLI scheme, sources said.