Samsung will be the first to avail 6% PLI incentives for FY21

Samsung Electronics is the only company that managed to achieve the production target set for handset PLI (Production-Linked Incentive) Scheme. The company will avail the 6% incentive in FY20-21, as per a person familiar with the matter.

This will have impacts on Samsung’s manufacturing capacity by a huge margin. The other 15 15 manufacturers (including iPhone makers Foxconn, Wistron, etc.) will be producing incremental goods of about Rs 4000 crore in the current financial year which began on April 1^st. On the other hand Samsung will be required to manufacture a straight up double of the same in the same period of time. This year too has been marred by COVID. But if Samsungs wants to avail of the second year’s incentives they’ll have to achieve the target.

A Big Year Financially

Samsung’s revenue in FY19-20 was Rs 70,628 crores. More or less 70% of these revenues came from the mobile phone segment, according to Tofler, a business intelligence firm. Samsung has already met the Rs 4,000 crore production target which is needed to avail the scheme in the first year.

This means they will have to produce mobile phones worth Rs 8000 crore in the second year. These mobile phones should be above the $200 price category, to avail of the 6% cashback through second-year incentives.

The government has already decided to extend the timeline for PLI scheme by one year. This was done considering FY20-21 as zero year for companies, much to the relief of the handset manufacturing industry. This would help companies to make fresh investments and expand manufacturing capacity.

What is the PLI?

The Rs 41,000 crore handset PLI scheme is an ambitious move. This includes cash payouts (as incentives) to companies based on their investments and targeted increments in production. Obviously it will look to make India a more attractive manufacturing destination in due course of time. The Centre aspires to build India into a global manufacturing hub. They have set an an export target for phones worth $100 billion over the course of the coming 5 years.

Companies qualifying are offered graded incentives. This will fetch the companies 6% of incremental sales of goods achieved over base year for the 1^st and 2^nd years. For the 3^rd and 4^th year the incentive reduces to 5% which further reduces to 4% for the 5^th year. To qualify, global companies are required to produce incremental goods worth of Rs 4,000 crore, Rs 8,000 crore, Rs 15,000 crore, Rs 25,000 crore and Rs 50,000 crore in the five years respectively.