Specialty steel gets special incentives
How will the recent production-linked incentive scheme for specialty steel impact the industry
Key Takeaways:
- In July 2021, the Indian government announced production-linked incentives for the specialty steel industry
- The scheme provides financial incentives to promote manufacture of specialty steel in the country
- The government has planned an outlay of Rs 6322 crore towards this scheme
Introduction to PLI
In the 2021-22 budget in February this year, the finance minister announced an outlay of 1.9 lakh crore for production-linked incentive schemes across 13 sectors. Of these, PLI schemes for three sectors had been approved in March 2020 and 10 sectors in November 2020.
In July 2021, the cabinet gave its nod for PLIs in specialty steel. Many industry insiders believe this could be a game-changer for the industry.
So, what exactly is a production-linked incentive and why is the government offering them?
The fundamental idea behind the incentive scheme is to boost domestic production by offering financial incentives to manufacturers. The incentive is offered as a percentage of incremental sales and varies from sector to sector – ranging from 4-15%.
PLIs are aimed at achieving many objectives:
- Increase domestic production
- Reduce imports
- Make Indian products more competitive both domestically and internationally
- Attract investments, both domestic and international
- Create a greater number of jobs
PLI and the steel sector
The PLI scheme for specialty steel, announced in July 2021, has been whole-heartedly welcomed by the steel industry.
Though India is the second largest producer of steel in the world, specialty or value-added steel accounts for only 18% of the total. In 2020-21, specialty steel accounted for 18mt of the 102mt steel produced in the country. India was a net importer of value-added steel (4mt), resulting in a forex outgo of Rs 30,000 crore.
The incentive scheme aims to boost the manufacture of higher grades of steel in the country and reduce our dependence on imports and reduce input cost for downstream MSME manufacturers.
What are the incentives and for whom?
The specialty steel PLI scheme offers three slabs of incentives with the lowest being 4 per cent and the highest being 12 per cent. These incentives are offered on incremental sales across five categories of specialty steel over the next five years. The first incentive will be payable in FY23-24 based on incremental sales achieved in 2022-23.