The production-linked incentive schemes (PLIs), while catalysing exports and domestic manufacturing, are also designed to enrich the government exchequer. The two PLI schemes for mobile phones and telecom equipment alone will result in net gains of around Rs 65,000 crore to the government over the next five years, just on account of incremental GST receipts more than offsetting the estimated Central Budget outlays.
Of course, as the higher incremental production and sales due to the schemes could potentially bolster the earnings of firms, the government’s direct tax receipts will get a boost as well.
While the PLI for mobile phones was already under implementation, the government announced one for telecom equipment last week. Both these sectors are valid for a five-year period.
Under the schemes, the government would be giving incentives – in the range of 4-6% annually – to the players who qualify for the scheme.
The structuring of the PLIs is such that the qualifying companies have to ensure that they first meet their investment and production targets. For every year, just the domestic sales of these companies would provide revenue to the government in excess of the PLI-based incentives payable to them for that particular year.
For instance, in the case of mobile phones, for FY21, the companies need to have incremental sales of Rs 4,000 crore over the base year of FY20 to qualify for incentives. Several companies have already written to the government that they would not be able to meet the target and have asked for incentives on whatever incremental sales they have been able to achieve and roll over the rest to the next fiscal’s target. Though the government has still not taken a decision on their demand, if it chooses to ignore, it need not pay anything yet the incremental GST revenues for whatever incremental production achieved by these firms would accrue to it.
Let’s take the case if the targets are met. The total production of the phones over a period of five years from FY21 onwards would be worth Rs 10.5 lakh crore. Of this, exports would be worth Rs 6.5 lakh crore and domestic sales, roughly Rs 4 lakh crore. The sales and distribution value addition in the domestic market chain is 25%, so the total domestic sales value would be Rs 5 lakh crore. GST at the rate of 18% on this would yield the government Rs 90,000 crore.
Contrast this with the outlay for PLI for mobile phones which is Rs 40,995 crore over the five years. This means there would be a net revenue for the government of around Rs 50,000 crore.
If we take the case of PLI for telecom equipment which was approved by the Cabinet only last week, the same math works out. The total outlay has been fixed at Rs 12,195 crore. The government said that it would lead to a total incremental production of around Rs 2.4 lakh crore over a period of five years. Industry sources said that of this, exports would be worth Rs 1.2 lakh crore, which leaves a similar amount as domestic sales. A 25% value addition would take the domestic sales value to Rs 1.5 lakh crore on which a GST at the rate of 18% would yield Rs 27,000 crore, of which it needs to pay out as incentives of only around Rs 12,200 crore.