Boost to PLI Schemes: Govt may ease curbs on Chinese investments

There could be a relaxation of the curbs on investment by Chinese companies in key sectors on a case-by-case basis, official sources told FE. However, this will not apply to Chinese app firms banned by the government in 2020.

Sources said there has been a realisation in the top echelons of the government that the success of various production-linked incentive schemes (PLIs) hinges on ancillary industries, which are mainly based in China. Investments by these ancillary firms is necessary for the companies that have been selected under PLI schemes to relocate their manufacturing units from countries like China, Vietnam etc. to India.

Industry sources said the government has assured them that it will expedite approvals wherever required on a case-by-case basis. Top government sources said various administrative ministries have been sensitised towards this approach.

The IT hardware industry had earlier approached the government over issues relating to localisation in the PLI, among others. It had said since investment from China is technically not allowed, it will be difficult for the selected companies to set up manufacturing/assembly lines in India for components like PCBA, battery packs, power adapters, etc.

Since PLI is designed for the export market, to set up a manufacturing hub in India, global players need to shift not only their base from external centres, but also the base of their suppliers. And problems arose since Chinese suppliers were not being given permission to invest in the country in the aftermath of the border tension between the two countries.

The IT hardware industry was particulalry hit by these hurdles, with the entire scheme threatening to be derailed. This was because the incentive structure in the PLI for this sector is low at an average of 2-2.5% over a four-year period, which does not justify relocating units from China or Vietnam. Just for comparison, the incentive structure for mobile phones PLI, which got operationalised in August 2020, is 4.5% over a five-year period.

Since import duties on hardware products are nil as they fall under information technology-I products, manufacturers did not see much reason to relocate their base from China to India. Further, for any relocation of units, Chinese technicians would require visas to travel, where also the government had earlier hardened its position.

Government sources said going forward, as various other PLI schemes were formalised, issues relating to investments by ancillary units arose for smooth supply chain operations. Hence, it has been decided that the firms concerned approach their respective administrative ministries to resolve the issues.