BHEL, L&T, others may get incentives for manufacturing import substitutes

The government proposes to incentivize operations of domestic equipment manufacturers such as BHEL, L&T, and Bharat Forge that results in the manufacture of equipment that is currently being imported, particularly from countries such as China.

Official sources said that a productivity-linked incentive (PLI) scheme involving a phased manufacturing program is being finalised for certain equipment used by the power sector. Once implemented, this would provide incentives to domestic companies on sales of equipment manufactured by them that is currently being imported.

In the electronics sector, the government already has a PLI scheme that extends an incentive of 4 to 6 per cent on incremental sales (over the base year) of goods manufactured in India and covered under target segments.

Companies like BHEL have been identified for the manufacture of equipment such as silicon solar wafers required for making solar cells that is largely imported in the country from China. Also, the company would scale up production of cold-rolled grain-oriented silicon (CRGO) steel, which is also largely imported from countries such as China, Korea and Japan. CRGO steel is used to manufacture the core of generators and transformers – a key power component that converts mechanical energy into electrical energy.

Similarly, new manufacturing lines of L&T based on import substitution would also be incentivised and so for other domestic equipment makers.

On its part, the ministry of power proposes EA to support the import substitution plan by creating a dedicated wing that will solely look at areas where domestic manufacturing needs to be stepped up as part of localisation of items currently being imported.

In the power sector, imports constitute 604 items, 392 of which are also made locally. Of the balance, local alternatives are available for 102 items, leaving 101 items that need to be made locally. It is for the manufacture of these items, that the government would incentivize operations of Indian companies, companies registered in India and having majority beneficial ownership of an Indian or run by an Indian CEO.

In 2018-19, India's total imports in the conventional power sector were to the tune of Rs 75,000 crore out of which imports from China stood at over Rs 21,000 crore. In the renewable segment, imports stood at $2.9 billion in FY19 with close to 70 per cent from China.

Along with import substitution for main power equipment, the PLI scheme for the power sector is also expected to cover the manufacture of solar cells and modules, 75 per cent of which are currently imported from China.

The PLIs for several sectors would be ready before the end of 2020. The existing PLI for mobile manufacturing offers incentives to the tune of 4-6 per cent for incremental investment and sales over a period of five years to companies. Similar schemes could be worked out for new sectors but the quantum of benefit would depend on the capital intensity of an industry..