28th July 2023 (7 Topics)
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Extension of PLI scheme to chemicals industry
Context
The Finance Ministry has mentioned that the government is going to introduce a production-linked incentive (PLI) scheme for investments in the chemicals and petrochemicals sectors.
- Large global investors like BASF, Adnoc, Rosneft and Aramco are looking for joint venture partners to invest in India.
About the Information:
- As per the ministry, industries in India are urged to reduce its reliance on imports of chemicals that can be made in India.
- They also emphasized the need to step up their adoption of newer technologies, with sustainability and circularity, for any benefits to accrue from potential partnerships with global player.
What is Production-linked incentive (PLI)?
- Production Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on incremental sales from products manufactured in domestic units.
- The scheme invites foreign companies to set up units in India, however, it also aims to encourage local companies to set up or expand existing manufacturing units and also to generate more employment and cut down the country’s reliance on imports from other countries.
PLI schemes in India:
- Initial Targeted Industries:
- Mobile and allied Component Manufacturing, Electrical Component Manufacturing, and Medical Devices.
- Now expanded to Automobile and auto components, Electronics and IT hardware, Telecom, Pharmaceuticals, Solar modules, Metals and mining, Textiles and apparel, White goods, Drones, Advanced chemistry cell batteries, and other sectors as well.
- Incentives: Calculated based on incremental sales. Range from 1% to 20% depending on the industry.
- Additional Incentives: In some sectors such as advanced chemistry cell batteries, textile products, and the drone industry, the incentive is based on sales, performance, and local value addition achieved over a period of five years.
Chemical industry in India:
- India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers.
- Globally, India is the fourth-largest producer of agrochemicals after the United States, Japan and China.
- India is the sixth-largest producer of chemicals in the world.
- India is the second-largest manufacturer and exporter of dyes and accounts for about 16% of the world's production.
- The country’s chemicals industry is de-licensed, except for few hazardous chemicals.
- The Chemicals & Petrochemicals demand in India is expected to nearly triple and reach USD 1 trillion by 2040.
- About 80% of India's petrochemicals capacity is integrated with petroleum refineries. This gives India an edge in terms of petrochemical feedstock certainty.
Need to introduce PLI in chemical sector:
- Boost indigenous manufacturing: The additional production will support the entire chemical value chai.
- Tackling issues: Due to shifts of supply chain, rising sense of nationalism, accelerating commoditization, business integration and the rapid changes in the chemical industry are trends that have changed chemical industry dramatically.
Government Interventions:
- 'India Chem’ 2022 initiative:
- The Government is planning to redraft Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) policy guidelines.
- The theme for India Chem 2022 is “Vision 2030: Chemicals and Petrochemicals Build India”.
- The government plans to implement PLI system with 10-20% output incentives for the agrochemical sector; to create an end-to-end manufacturing ecosystem through the growth of clusters.
- A 2034 vision for the chemicals and petrochemicals sector has been set up by the government to explore opportunities to improve domestic production, reduce imports and attract investments in the sector.
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