Production-Linked Incentive (PLI) Schemes are a cornerstone of the Government’s push for achieving an Atmanirbhar Bharat. The objective is to make India’s domestic manufacturing globally competitive and to create global champions in manufacturing. As we are aware, in the Union Budget 2021-22, the Hon’ble Finance Minister announced an outlay of INR 1.97 lakh crore to be utilised over 5 years for the PLI Schemes in 13 key sectors. The thrust to reinforce India as the “Pharmacy of the world” is evident from the PLI Schemes for this sector.
The Indian government announced a production-linked incentive (“PLI 1.0”) scheme on 21 July 2020 aimed at boosting India’s bulk drug security. This covered identified Active Pharmaceutical Ingredients /Key Starting Materials /Drug Intermediates. The financial outlay for the said PLI scheme was INR 6,940 Cr.
With the aim to further encourage the pharmaceutical industry, to enhance its manufacturing capabilities, to diversify the product mix to complex generics, to enhance patented drugs, for going up the value chain, for bringing investment and creating global champions out of India, a new scheme was notified by the government on 3 March 2021 (“PLI 2.0”) and its operational guidelines have since been announced on 1 June 2021.
The new scheme is more extensive in its coverage as compared to PLI 1.0 and is expected to offer a total of INR 15,000 cr in incentives to the selected applicants for the identified pharma products.
Target Groups for PLI 2.0
The manufacturers of pharmaceutical goods registered in India will be grouped based on their Global Manufacturing Revenue of pharmaceutical goods in (FY) 2019-20 (hereinafter referred to as GMR).
Within Group C, a sub-group for MSMEs has been carved out and a minimum of 20 MSMEs will be selected (subject to sufficient eligible applicants) – this is a welcome step for the MSME sector to participate in the said Scheme.
The product categories covered in the Scheme and rate of incentive on their incremental sales (over base year FY 2019-20) is summarised as follows:
Expenditure to be considered for eligible investments:
- New Plant, Machinery, Equipment and Associated Utilities.
- Research and Development (R&D)
- Transfer of Technology (ToT) agreements
- Factory building & associated infrastructure (limited to 20% of Plant & Machinery)
One key ask of the Industry to include R&D expenses, product registration related costs has been considered in this Scheme which should be beneficial for the participants.
There are different selection criteria for Group A, B and C. As compared to PLI 1.0, it is interesting to note that the same has been delinked from the investment proposed to be made for the said Scheme – only exception being MSME (excluding in vitro medical devices) where there is a criterion of total investment committed under the Scheme. Otherwise, the selection criteria would be based on legacy data of gross manufacturing investment in India, number of ANDA / NDA as on 1 April 2021, R&D expenditure, etc as detailed in the operational guidelines.
Selected participants in the scheme will be eligible for incentives on incremental sales of pharmaceutical goods based on yearly threshold criteria of minimum cumulative investment and minimum percentage growth in sales as prescribed in the Scheme.
As the application window for PLI 2.0 is scheduled to close on 31 July 2021, it would be advisable to evaluate whether such expansion/ entry into new product segments could stand the test of business feasibility and the likely benefits that could accrue to the company.
Given the enhanced budgetary outlay and increased product coverage under PLI 2.0, this may be an exciting opportunity for the Pharma Industry to be part of the “Atmanirbhar Bharat” vision of the Government – PLI 2.0 has the potential to be one of the key growth drivers of our economy.
Suresh Nair is EY India’s Partner – Indirect Tax
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