Hardware PLI: Govt cuts manufacturing target by half

As per estimates, the global market for laptops, tablets and desktop computers has grown from $229.38 billion in 2018 to $ 240.99 billion in 2019 and is expected to stabilize around $220 billion by 2025.

Even before it gets operationalised, the government has had to cut the output of its production-linked incentive (pli) scheme for IT hardware, which includes laptops, tablets, all-in-one PCs and servers, by half with manufacturers turning up with low bids. As a result, the utilisation of the outlay for the scheme will also come down by a similar quantum and export targets will take a big hit —from Rs 2.45 lakh crore over a four-year period announced earlier to a mere Rs 60,000 crore.

IT hardware manufacturers blame this on the low incentive structure which works out to an average of 2-2.5% over a four-year period which does not justify relocating units from China or Vietnam, especially for hardware products, where import duties are nil as they fall under IT products. The incentive structure for mobile phones PLI, which got operationalised in August 2020 and saw companies committing up to the maximum limit, works out to around 4.5% over a five-year period.

When the government had announced the IT hardware PLI scheme on February 24, the outlay was fixed at Rs 7,350 crore over a four-year period. During this period, the government had estimated a production of up to Rs 3.26 lakh crore, of which exports were expected to be of the order of Rs 2.45 lakh crore. Last week (May 4), when the government announced the names of the companies which have applied for the scheme, the production target was slashed to Rs 1.60 lakh crore of which exports would be of the order of Rs 60,000 crore. Since the incentive structure is based on achieving a minimum threshold of incremental sales over base year going up to a maximum limit, with companies committing lower production target only half the outlay of Rs 7,350 crore will get utilised.

Though 19 companies have submitted applications, the scheme will now make sense for only players which already have production capacity in India — Dell and HP, for instance. Here also it would be domestic sales which would be attractive for them rather than exporting which has been the main driving force for the government behind designing PLI schemes.

India’s import of laptops has increased by 42% –– from $2.97 billion to $4.21 billion –– in value terms, in the last five years. Around 87% of imports continues to come from China. In absolute terms, India’s dependency on China is very high –– it has increased from $2.83 billion to $3.65 billion during the last five years. For the year ending March 2021, India’s import of laptops is estimated to have reached close to $5 billion out of which imports from China would be around $4.35 billion.

As per estimates, the global market for laptops, tablets and desktop computers has grown from $229.38 billion in 2018 to $ 240.99 billion in 2019 and is expected to stabilize around $220 billion by 2025. Only six global players comprise 89% of the market shipments for laptops and 81% for tablets. The United States and European Union together represent more than 40% of the global market.

The global manufacturing hubs are limited to a handful of countries with China being the predominant supplier to the world 66% market share (2019); $100 billion in value).

Companies which have applied under category IT hardware are Dell, ICT (Wistron), Flextronics, Rising Stars Hi-Tech (Foxconn) and Lava. Fourteen companies have filed applications under the category domestic companies, which include Dixon, Infopower (JV of Sahasra and MiTAC), Bhagwati (Micromax), Syrma, Orbic, Neolync, Optiemus, Netweb, VVDN, Smile Electronics, Panache Digilife, HLBS, RDP Workstations and Coconics.