Mr. Ravichandran Purushothaman , President, Danfoss Industries Pvt. Ltd.
Please brief us about Danfoss journey in India.
An influential leader in energy efficient technology, Danfoss Industries established its sales presence in India from the 1960s and started manufacturing in India from 1998 establishing its 100% owned subsidiary Danfoss Industries Pvt Ltd. headquartered in Chennai. Over the years, Danfoss India has expanded its sales and manufacturing footprint across India and now has multiple manufacturing and sales offices as well as a wide channel partner presence pan India. The company serves a wide range of industries with its Drives, electrification products, heating valves, controls and solutions for refrigeration, HVAC, heavy industries, district energy and mobile hydraulics, making sectors such as infrastructure, food, energy and climate, more sustainable and efficient.
In a world that’s constantly evolving, our energy efficient solutions are helping nations meet their sustainable development goals. We believe in creating solutions that leave a lasting impact and are constantly improving through innovations‘to do more with less’ so that dependence on finite resources is lowered while output levels steadily rise.
In line with India government’s ‘Make in India’ & ‘AatmaNirbhar Bharat’ vision, the company has made extensive investments in India over the years.Increased localisation and inspiring sustainability milestones set the company apart while it increases manufacturing in India for India and global.
Please brief us what is the Production-Linked Incentive scheme and why it is needed?
India as a country was largely an agrarian led economy, which later shifted towards a service led economy post 1986 due to the telecom revolution and computerization. Currently, the manufacturing sector is poised to lead the country’s progress and securing its position among global competitors, given the high growth potential in the segment over the coming years due to rapid urbanisation & digitalisation and the strategic push from the government.
However, the current manufacturing base in India has not reached its full potential due to its lack of cost competitiveness in the global markets’. To boost this potential, the government has introduced ‘Production-Linked Incentive Schemes’as an integral part of “AatmaNirbhar Bharat Abhyaan” announced by PM last year, which offers incentives on incremental sales for products manufactured in India.
It provides incentives to companies for enhancing & accelerating their domestic manufacturing capabilities and improving the cost competitiveness of Indian goods in the national and global markets. The scheme is expected to help India in its journey towards becoming a 5 trillion economy.
India wants to reduce import dependencies and aims to increase exports so that Forex Outflow out of India can be reduced, thereby Balance of Payments can be streamlined. PLI scheme is based on Production in India (we mean Incremental production) and will be an additional incentive for Manufacturers to increase their investments on production in India, which can also help in the creation of more job opportunities in Tier 1 & 2 cities. The PLI subsidies will be in range of 3% to 5% of incremental Sales volume and will have a significant impact on Net profits of the manufacturer.
The scheme was first developed for the medical and electronic manufacturing industries. However, given the potential benefits,the government has started to include other labour-intensive manufacturing industries such as food processing, textiles, automotive etc. where job creation would double in a relatively short period of time, with this support.
How PLI Scheme can help boost India’s manufacturing sector?
Given the fact that subsidy is provided on incremental Turnover (over and above baseline turnover), if a company wants to avail subsidies, they will have to increase production in India. This will definitely help boost India’s manufacturing sector.
While incentives on incremental sales and aiding domestic manufacturing are the key advantages of the PLI scheme, the trickle-down effect of the scheme itself is beneficial to India’s manufacturing ecosystem in totality. For instance, an OEM that receives incentive from the government would end up using these funds to boost its supplier base within India to achieve incremental production.
These fiscal subsidies can also be ploughed back into the system as CAPEX investments by organizations to boost their own manufacturing capacity. This in turn makes domestically manufactured products much more cost competitive as compared to products produced globally.
When the capex investment done today comes back later as subsidies, it gives more competitive power for Indian products and also motivates more manufacturers to ‘Make in India’, especially those products for which demand exists but dependency on imports are high. For example, Pharma, Air Conditioning products etc.Production of the same in India will help reduce import dependencies, safeguard our forex and make quality goods available for Indian consumers at competitive rates.
For organizations to continually reap the benefits of the scheme, they would have to increase their manufacturing capacity locallywith consequent increments in turnover, which the scheme already promotes. Hence the scheme is a self-perpetuating move towards accelerating economic growth.
Who is eligible for the scheme & what are the incentives involved?
The strategy encompasses a plethora of industries which stand to benefit from the schemeand help the domestic manufacturing sector flourish. The current list of sectors that have been identified by the government and approved by the cabinet are:
Telecom & Networking Products
White Goods (ACs & LED)
High Efficiency Solar PV Modules
The government also plans to extend this scheme to additional sectors and sub-sectors to improve the overall manufacturing ecosystem. Another 4 schemes are in the pipeline but are yet to receive cabinet approval as of April 2021 which are:
Automobiles & Auto Components
Advance Chemistry Cell (ACC) Battery
Textile Products: MMF segment and technical textiles
The eligibility criteria varyfrom sector to sector.As per the scheme, the fiscal support involves a first round of 4% to6% incentives for the base year (2019 -2020) and a second round of 3% to 5% incentive on incremental sales for subsequent years (2021-2026).This is over and above the baseline turnover.
How many years this programme is planned for and how will the funds be allocated?
As per the information published by the Ministry of Commerce and Industry incentives would be paid for a period of 6 years including the base year starting from 2019-2020 and ending by 2026-2027. The allocation of funds is as per the sectoral outlay in the union budget under the ‘AatmaNirbhar Bharat’initiative.
Is there any scope of improvement in this scheme?
The PLI scheme is a good example furthering the‘AatmaNirbhar Bharat’ initiative. The scheme is working fine now, and Govt. machinery is acting swiftly on any queries and resolving issues.
Although it is a great scheme to boost India’s manufacturing and technological capabilities, there is still scope to make it more effective and efficient. Currently,several companies are ready to invest but unable to meet the description set out by PLI and hence revisiting the eligibility criteria to include more sectors/products throughan ease of application processwill be a great helpto enable economic growth.
Furthermore, improvements to the structural implementation of the scheme itself is necessary to ensure reduction in bureaucracy thereby benefiting the right organizations to meet the nation’s development goals.Also, a system should be put in place to assess the effectiveness of this scheme in terms of the achievement of intended objectives.Ground level evaluation of PLI scheme beneficiaries and their contribution to the development of their respective industry sector is required to ensure that commendable achievements of PLI schemes is brought to light, to ensure more companies come forward to avail the same.
Another issue often brought out by the steel industry is the possibility of extension of these benefits beyond 5 years since it is a long cycle business