Appliance makers are seeking additional incentives in the form of cheap land parcels to expand manufacturing facilities under the production-linked incentive (PLI) scheme.
Sources told Moneycontrol that white-goods makers have approached the Electronics Ministry seeking real estate at subsidised rates or on a long-term lease with agreements on commission sharing.
The PLI scheme for white goods became operational on April 1. Under this programme, eligible players in the air-conditioner and LED manufacturing space will be offered incentives worth Rs 6,238 crore over a period of five years.
This includes cash incentives of 4-6 percent on incremental sales made over the base year of 2019-20, for five years. This means that companies will be eligible for incentives only if they exceed the production numbers of the base year.
Why land is crucial
However, appliance makers said that availability of land is crucial if the scheme is to succeed. White-goods firms have time till October to make applications to set up factories under the PLI scheme.
“Take air-conditioners, for instance; most ACs are merely assembled in India because components such as compressors are imported from China and other markets. If you want the entire product to be made in India, land is the first requirement. The government should facilitate that,” said the vice president for home appliances of one white-goods company.
Companies either want a special economic zone (SEZ) structure, where land availability is not a concern, or access to land parcels through State industrial corporations.
India had 378 notified SEZs as of January 31 this year. SEZs are allowed duty-free import or domestic procurement of goods for development, operation and maintenance of their units.
There is also a 100 percent income-tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, 50 percent for the next five years and 50 percent of the ploughed back export profit for the subsequent five years.
The AC industry is estimated to be worth Rs 22,000 crore in India while the LED light industry’s size has been valued at Rs 10,500 crore.
Brands such as Voltas, LG, Samsung, Lloyd (Havells) and Blue Star are among the top brands in the AC segment. Large brands in the LED lighting space include Philips, Havells, Bajaj Electricals, Crompton Greaves Consumer and Wipro Lighting.
Expanding existing manufacturing facilities is not an easy task and involves bureaucratic delays, said the chief strategy officer at an electrical goods firm.
“Even if there is land available adjacent to our existing facilities, getting approval to expand takes at least 12-15 months. Plans on exact production numbers, investment made by foreign partners/and for how many years, manpower requirement, jobs given to locals are among the common questions asked. In some cases, officials also insist on meeting the top management,” he added.
The executive said that if land was also made an official part of the PLI scheme, expanding manufacturing in current locations would be quicker.
Cost of land
White-goods companies incur costs between Rs 70 crore and Rs 100 crore to set up a new factory or basic manufacturing facility (one product line), depending on the location and type of product.
“A majority (about 70 percent) of costs involved in setting up a manufacturing unit pertain to acquiring land. Typically land is acquired on lease for new products. If the government could set aside land parcels across the country for white goods production, companies will be more eager to make in India,” said the India business head of a global appliance maker.
The government has not yet announced any land incentives or set aside cheap land parcels for its Make in India mission.