An Analysis: Response of firms to PLI Scheme 1

An Analysis on the response of Firms to the PLI Scheme

2333302 Aaryan Dubey

2333304 Ajitesh Solanki
2333305 Akshita Dhagat
2333338 Reet Agarwal
2333343 Sania Thakrar

Department of Economics
CHRIST (Deemed to be University)
Microeconomics I
Dr. Roopa Patavardhan
October 27, 2023
An Analysis: Response of firms to PLI Scheme 2

INTRODUCTION

Production Linked Incentive Scheme (PLI) for Large Scale Electronics

Manufacturing notified vide Gazette Notification No.CG-DL-E-01042020-218990 dated
April 01, 2020 offers a production linked incentive to boost domestic manufacturing and
attract large investments in mobile phone manufacturing and specified electronic
components, including Assembly, Testing, Marking and Packaging (ATMP) units. The
Scheme did tremendously boost the electronics manufacturing landscape and establish India
at the global level in electronics sector.
The scheme extended an incentive of 4% to 6% on incremental sales (over base year) of
goods manufactured in India and covered under target segments, to eligible companies, for a
period of five (5) years subsequent to the base year as defined.
After being launched in 2020 for electronic manufacturing sector, it was decided to introduce
it to 10 new sectors later in the year including food processing, telecom, electronics, textiles,
speciality steel, automobiles and auto components, solar photovoltaic modules and white
goods such as air conditioners and LEDs.
The proposal for accepting applications under Second Round of the PLI Scheme was
approved by the Competent Authority after seeing the success of the First Round of
Production Linked Incentive Scheme in attracting investments in mobile phone and electronic
component manufacturing, The target segment for the purpose of this round shall
be Specified Electronic Components.
Under the Second Round, incentives of 5% to 3% shall be extended on incremental sales
(over base year i.e., 2019-20) of goods manufactured in India and covered under the target
segment, to eligible companies, for a period of four (4) years.
In the Union Budget 2021, Finance Minister Nirmala Sitharaman mentioned the inclusion of
13 more sectors under the PLI Scheme for a period of five years and Rs. 1.97 lakh crores
have been allocated for this scheme from Financial Year 2022. By this the main goal of
government can be achieved i.e., to make India an integral part of the global supply chain and
enhance exports by also generating employment opportunities for the country’s youth at the
same time.
An Analysis: Response of firms to PLI Scheme 3

EFFECT OF PLI SCHEME

A revolutionary tool for policy, the Production Linked Incentive (PLI) plan has had a major
impact on several sectors of the Indian economy. The PLI Schemes aim to make Indian
businesses and manufacturers globally competitive by luring investments in key sectors and
cutting-edge technology, assuring efficiency and bringing economies of size and scale to the
manufacturing sector.
In the electronics and technology sector, PLI has led to a spur in investments in smartphone
manufacturing, semiconductor production and other electronic components as well. India’s
dependence on imports decreased by a significant amount because of the very same reason.
Moreover, the PLI scheme created job opportunities and accelerated technological
advancements. The PLI scheme in the electronics sector has led to increased production
through financial incentives, infrastructure development, technology upgrades, supply chain
localization, product diversification, job creation, improved quality control, foreign
investment, export opportunities and economies of scale.
Through PLI, the automobile industry has also undergone a positive transformation with
several major automakers expanding their manufacturing units in the country. The scheme
also contributes to India’s sustainable development goals by encouraging the production of
electric vehicles and advanced technologies. The government has approved five companies
under the production-linked incentive for the automobile and auto component industry (PLI-
Auto) scheme. The companies include Ashok Leyland, Eicher Motors, Pinnacle Mobility,
Tata Motors, and Booma Innovative.
PLI has supported home manufacturing of vital medications and medical equipment in the
pharmaceutical and healthcare sectors, promoting self-sufficiency and lowering dependency
on imports. The need for a strong domestic pharmaceutical sector was underscored by the
COVID-19 pandemic, and PLI was instrumental in meeting this requirement. Examples of
firms under PLI- Dr. Reddy's Laboratories Limited, Biocon Limited, Strides Pharma Science
Limited and Premier Medical Corporation Private Limited.
The renewable energy sector has also reaped the benefits of PLI and has witnessed an
increase in production and exports, making India a more attractive destination for global
brands . The scheme has incentivized the use of advanced technologies and sustainable
practices in this sector.
Positive effects have also been observed in the renewable energy sector, as PLI supports
India's switch to clean energy sources by promoting the production of batteries, wind
turbines, and solar panels.
An Analysis: Response of firms to PLI Scheme 4

CASE STUDY

Apple Inc. is an American multinational technology company and is the world’s biggest
company by market capitalization. It’s the largest manufacturing company by revenue and the
second largest mobile manufacturer. The company produces consumer electronics and is best
known for its mobile phones (iPhone) and laptops (MacBook).
As of 2021, the company uses components from 43 countries wherein a majority of
assembling is done by design manufacturer firms Foxconn, Pegatron, Wistron and Compal
Electronics. The factories are mostly located in China, followed by Brazil and India.
The company has heavily relied on China to enable mass production of its products and more
than 95% of the total production is done in Zhengzhou. However, due to the ongoing political
tensions between China and USA along with the supply chain issues during 2020 which were
aggravated due to China’s “zero covid” strategy and strict lockdowns, Apple seeked to
accelerate plans to shift their production to reduce dependence on China.
Apple decided to diversify its production to India in order to build it production base beyond
China while availing the incentives offered by the PLI Scheme. This shift is a strategic
response and change in behaviour to the PLI scheme that shows market expansion, supply
chain diversification and greater engagement.
Apple began its manufacturing in India in 2017 but only made older or lower budget models.
The iPhone 14 was the first new model to be manufactured in India by Foxconn as it was
launched globally. The company will be producing iPhone 15 at a higher speed and volume.
Indian Commerce Minister has said that 5% to 7% of all iPhones are manufactured in India
and the company aims to raise that to 25%.
The response is twofold: The incentives to boost local manufacturing under the PLI scheme
caught the eye of Apple, especially in a time they were looking to shift their production base
out of China. The scheme allowed Apple to manufacture their products at a relatively lower
cost due to provisions of the scheme and have availability to cheaper labour resources.
iPhone manufacturer, Foxconn announced that it will be investing 700 million USD to build a
new factory in Bangalore, India.
This also allows Apple to capture the Indian market as manufacturing in India is more
profitable and makes the final cost of the product lower and attracts a greater number of
consumers. The Import tariffs of the country on electronics made the China manufactured
phones sold in India significantly higher than most countries.
According to reports (Economic Times, 2023), Apple now produces 85% of the phones it
sells in India. Before PLI scheme, 90% of the phones sold in India were imported from
China.
Following in these steps of Apple to expand its network of suppliers, Google has announced
that they will be manufacturing their flagship pixel phones in India as a part of Make in India
under PLI initiative.
An Analysis: Response of firms to PLI Scheme 5

India is now among the top five markets for the company after this production decision. They
have plans to Increase production in India to over 40 billion USD in the next 4-5 years. They
have already crossed 7 billion USD in the last fiscal.
An Analysis: Response of firms to PLI Scheme 6

RELEVANCE TO MICROECONOMIC THEORIES

Apple's response to India's PLI scheme can be analysed through the lens of several
microeconomic principles:
Rationality
Apple's selection to shift production to India is a rational one, as it will permit it to lessen its
costs and increase its income. The PLI scheme will offer Apple with financial incentives to
provide its products in India and offset the higher exertions prices. Moreover, India has some
of different benefits, along with a huge pool of professional people and a growing market.
Apple's choice is likewise in keeping with its overall commercial enterprise method of
expanding its market percentage in emerging markets. Ordinary, Apple's reaction to the PLI
scheme is a rational one this is in all likelihood to maximise its earnings and help its normal
business strategy.
Incentives
Apple's response to the PLI scheme is a good instance of the way incentives can influence
monetary conduct. The PLI scheme has furnished Apple with a monetary incentive to shift
manufacturing to India. This incentive has helped to offset the higher labour charges in India
and made it greater profitable for Apple to produce its products in India.
Apple's reaction to the PLI scheme also suggests how incentives can be used to achieve
coverage dreams. The Indian government is using the PLI scheme to attract foreign funding
in the manufacturing sector. Apple's decision to shift manufacturing to India is an indication
that the PLI scheme is successful in reaching its intention.
Ordinary, Apple's response to the PLI scheme is a superb instance of the way incentives can
impact monetary conduct and achieve policy goals.
Certainly, here is a shortened version of your paragraph:
Marginal blessings of transferring to India due to the PLI coverage:
•Value benefits: India has a comparative gain in the manufacturing of hard work-in depth
items, which includes smartphones, and offers economic incentives to corporations that shift
production to the country. This may assist Apple to lessen its expenses and boom its earnings.
•Market access: India is a large and growing phone marketplace, and transferring production
to the use of a can assist Apple to increase its market proportion in India.
Average, the marginal blessings of transferring manufacturing to India are probable to
outweigh the marginal costs, making it a rational selection for Apple.
Manufacturing choices
The PLI scheme is probably to influence Apple's selection to source greater additives
domestically and increase its providers' manufacturing capacities in India. Those choices
might be driven by means of the financial incentives presented by means of the scheme, in
addition to the blessings of localization and economies of scale.
An Analysis: Response of firms to PLI Scheme 7

 Localization
Localization can assist Apple to reduce its costs and publicity to supply chain disruptions, and
to higher serve its Indian customers. The PLI scheme provides monetary incentives to
companies that supply a certain percent in their components locally.
 Scale
Seeing the call for inside the Indian marketplace and the export potential, Apple's suppliers
are expanding their production capacities in India. The PLI scheme also gives financial
incentives to groups that put money into manufacturing capability in India.
Economies of Scale
As Apple's suppliers’ growth manufacturing in India, they'll be able to achieve economies of
scale, to be able to permit them to lessen the average fee of manufacturing in step with unit.
The enormous domestic call for in India and the ability to export to other markets make
economies of scale especially feasible for Apple's suppliers.
Standard, the PLI scheme is likely to have a high-quality impact on Apple's manufacturing
decisions in India, leading to multiplied localization, scale, and economies of scale.
An Analysis: Response of firms to PLI Scheme 8

CONCLUSION

PLI Schemes are a cornerstone of the Government’s push for achieving an Atmanirbhar
Bharat. It can be said that PLI schemes had a positive impact on the overall manufacturing
industries of the nation leading to foreign direct investment (FDI) in many crucial sectors. It
has helped in increasing the production capacity significantly and has also generated a lot of
employment. Even though there are a lot of drawbacks of the scheme, it has helped in the
economic growth of the country. Implementing such programmes has its obstacles such as
guaranteeing appropriate incentive distribution, assuring being transparent, and preventing
exploitation. It is critical that the government solve such problems in order to retain the
scheme's legitimacy. Thus, it is fair to say that the scheme is very much effective but the
government needs to be vigilant about their implementation in order to incentivize firms in a
profitable direction.
An Analysis: Response of firms to PLI Scheme 9

REFERENCES

Production Linked Incentive Scheme (PLI) for Large Scale Electronics manufacturing |
Ministry of Electronics and Information Technology, Government of India. (n.d.).
Retrieved October 23 , 2023 from
https://www.meity.gov.in/esdm/pli
Admin. (2022, December 13). Production Linked Incentive Scheme - Expansion of PLI
Scheme [UPSC notes]. BYJUS.
Retrieved October 23 , 2023 from
https://byjus.com/free-ias-prep/pli-production-linked-incentive-scheme/
Status of Production-Linked Incentive Schemes; (n.d.).
Retrieved October 23 , 2023 from
https://www.pib.gov.in/PressReleasePage.aspx?PRID=1710134
PLI Scheme | Department of Telecommunications | Ministry of Communication | Government
of India. (n.d.).
Retrieved October 23 , 2023 from
https://dot.gov.in/pli-scheme
Business Today Desk. (2023, September 24). Apple to ramp up production over five-fold in
India to $40 billion in next 5 years: Report. Business Today.
Retrieved October 23 , 2023 from
https://www.businesstoday.in/technology/news/story/apple-to-ramp-up-production-
over-five-fold-in-india-to-40-billion-in-next-5-years-report-399499-2023-09-24
Benedicto, I. (2023, August 17). Why Apple Is Manufacturing The iPhone 15 In India.
Forbes.
Retrieved October 23 , 2023 from
https://www.forbes.com/sites/irenebenedicto/2023/08/17/why-apple-is-
manufacturing-the-iphone-15-in-india/?sh=4145d9121afe
Online, E. (2023, March 1). PLI boost: Apple creates 1.5 lakh direct and indirect jobs in
India. The Economic Times.
Retrieved October 23 , 2023 from
https://economictimes.indiatimes.com/jobs/mid-career/pli-boost-apple-creates-1-5-
lakh-direct-and-indirect-jobs-in-india/articleshow/98325625.cms?from=mdr
An Analysis: Response of firms to PLI Scheme 10

Kumar, A. (2020, August 1). PLI scheme: Welcome to India, says government to Apple
and Samsung; Chinese firms give it a miss. cnbctv18.com.
Retrieved October 23 , 2023 from
https://www.cnbctv18.com/technology/pli-scheme-welcome-to-india-says-
government-to-apple-and-samsung-chinese-firms-give-it-a-miss-6515001.htm
The PLI Scheme: a Game-Changer for India’s Manufacturing . . . (2023, July 11). Invest
Retrieved October 23 , 2023 from
https://www.investindia.gov.in/team-india-blogs/pli-scheme-game-changer-indias-
manufacturing-sector#:~:text=As%20per%20the%20Economic%20Survey,(as%20of
%20September%202022).

WORKLOG
An Analysis: Response of firms to PLI Scheme 11

2333302 Aaryan Dubey Drawbacks

Action plan
2333304 Ajitesh Solanki Relevance to microeconomic topics
Proof reading
2333305 Akshita Dhagat Introduction
Conclusion
References
Formatting
2333338 Reet Agarwal Case study
Research analysis
2333343 Sania Thakrar Effect and consequences of PLI
Formatting