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The Production Linked Incentive (PLI) Scheme is a scheme aimed at encouraging domestic manufacturing, substituting imports and finally boosting exports. In other words, the PLI scheme over a period of five years aims to augment domestic manufacturing and enhance export capabilities in the speciality steel sector. The PLI scheme envisages achieving this by providing incentives to the identified steel subsectors.

India’s steel production and trade has largely tended to concentrate on grades that are in the lower rung of the value addition ladder. Even in years when India has been a net exporter of steel, it has been in terms of quantity and not value. Analysis of India’s steel trade basket shows that India exports more of hot rolled and cold rolled coils and imports more of speciality steel grades such as high strength steel, electro galvanised steel, heat-treated steel, asymmetrical rails, bearing steel, valve steel, etc. This anomaly is not in sync with the fact that India is the world’s second largest producer as well as consumer of steel, besides being among the top steel trading nations. The PLI Scheme aims to correct this anomaly.

All specialty steels make up for a major share of India's import. In FY 2017-18, while India was a net exporter of steel, alloy steel import was to the tune of $1.1 billion. In fact, India has not been able to produce Cold Rolled Grain Oriented Electrical Steel (CRGO steel) locally for years. Currently an estimated 20 per cent of CRGO requirement enters the country in the form of imported scrap CRGO discarded overseas and is used for transformers in India.

The PLI scheme for the steel industry is envisaged to enable it to move up the value chain and focus on increasing production as well as exports of specialty steel.

The Scheme in Brief:

In line with the Atmanirbhar Bharat initiative, the PLI Scheme was envisaged and was first approved by the Union Cabinet on 11 November 2020 for 10 manufacturingsectors. On 22 July 2021, the Union Cabinet approved the PLI scheme for specialty steel.

There are five speciality steel categories selected for the PLI scheme:

• Steel Rails - asymmetric rails and head hardened rails.
• Coated Steel - galvalume, galvanneal, colour coated or plated and tin mill products
• High Strength Steel - API grade, high tensile sheets or coils or plates, Auto Grade Steel (AHSS), boiler quality, pressure vessels, abrasion and wear resistance
• Alloy Steel Bars and Rods – tool and die steel, valve steel, bearing steel, automotive powertrain steel and precipitation hardened stainless steel
• Electrical Steel – CRGO and CRNO

The PLI Scheme provides:

• Incentives worth Rs 6,322 cr over the next five years.
• The scheme proposes to incentivise eligible manufacturers by paying between 4 per cent to 15 per cent incentive on incremental production.
• However, the annual incentive payable is capped at Rs 200 cr per eligible company.

The PLI Scheme is expected to:

• Attract investment to the tune of Rs 39,625 cr in the next five years in speciality steel manufacturing.
• Provide for an estimated employment opportunity to more than 5.25 lakh people, directly and indirectly.
• The PLI is also expected to result in capacity addition of around 25 million metrictonne in the speciality steel segment.

The Eligibility criteria, broadly, are as follows:

• Any company registered in India, engaged in manufacturing of the identified ‘specialty steel’ grades will be eligible to participate in the scheme.
• However, the company has to ensure that the steel used for making ‘specialty steel’ is ‘melted and poured’ in the country, thereby ensuring end-to-end manufacturing keeping in view the Prime Minister’s Atma Nirbhar Bharat’. Manufacturers engaged in only part of the value chain will generally not be eligible under the scheme.
• Joint ventures are also eligible in this scheme.
• The list of permissible investments would include investments in R&D which is capitalised, expenditure in transfer of technology, payments towards IPR, quality control equipment, etc.
•  Performance Security of 0.5 per cent of the committed investment shall have to be submitted by the company.
• Online applications under the scheme will have to be submitted calendar year wise, before January 31, of the succeeding calendar year.

Applications of eligible applicants shall be scrutinised by the PLI Cell within the Ministry of Steel and placed before the Empowered Committee (EC) for approval. The top 5 eligible manufacturers in each sub-category shall be selected on the basis of the following minimum yearly incremental production or sales commitment:

• Minimum investment commitment for that sub-category in five years
• R and D expenditure as percentage of annual turnover
• Commitment not to curtail production of alternative products from existing product lines in order to enhance production of product(s) eligible under PLI scheme
• Selected manufacturers under the PLI scheme shall have to enter into a MoU with the Ministry of Steel.
• Multiple MoUs for sub-categories can be entered into, but any failure to meet the commitment shall result in recovery of the incentive paid.

Given its many positive features and the encouragement that it will provide to enable the steel industry to move up the value chain, the PLI Scheme has been warmly welcomed by the steel industry across the board.

The President of the Indian Steel Association and CEO, ArcelorMittal Nippon Steel India, Dilip Oommen expressed warm appreciation for the launch of the Scheme: "We applaud the Union Cabinet’s decision to approve the PLI scheme for specialty steel. The steel industry has demonstrated tremendous resilience in these challenging times. This decision will go a long way in enabling growth, not just for the steel sector, but overall infrastructure development. It will help bring the country at par with the best in the industry globally. This milestone also reinforces the Government’s vision of building and growing Atma Nirbhar Bharat; and we are confident that this move will truly provide further impetus to India's socio-economic growth."

Bhaskar Chatterjee, Secretary General and Executive Head, Indian Steel Association told, "We welcome the Union Cabinet’s decision to approve the PLI scheme for specialty steel. This scheme will play a pivotal role in enabling growth by promoting investments for the steel industry which historically has contributed immensely towards nation-building, and continues to do so. We are confident that this milestone will also strengthen Government’s vision of building a true ‘Atma Nirbhar Bharat’, which in turn will go a long way in accentuating India’s overall economic growth."