Samsung Electronics faces potential exclusion from India's PLI scheme due to invoicing discrepancies - Business Today

Samsung Electronics, one of the leading global electronics manufacturers, may not receive the incentives promised under India's production-linked incentive (PLI) scheme for smartphone manufacturing in its inaugural year. This is due to what government officials describe as "discrepancies in invoicing." However, Samsung has expressed that it is engaged in advanced discussions with the government to resolve the issue, according to an Economic Times report.

Last August, Samsung claimed Rs 900 crore in incentives for achieving Rs 15,000 crore worth of additional sales in the fiscal year 2021 compared to the previous year. To be eligible for these incentives, Samsung had to produce handsets with a factory cost exceeding $200 (approximately Rs 15,000). Unfortunately, the Ministry of Electronics and Information Technology (MeitY) discovered "some discrepancies in the company's invoices" and subsequently withheld the payout.

A representative from Samsung, which recently reclaimed its position as India's largest smartphone brand, confirmed ongoing discussions with the government regarding this matter, according to a statement made to the Economic Times.

One senior government official mentioned to ET that there were valuation issues with Samsung's invoices and that while the invoices are now accurate and being verified, the incentives for the first year are unlikely to be recovered. However, the official did note that Samsung has rectified its billing, and the incentive payouts for the second year of the PLI scheme, starting from the fiscal year 2022, will begin soon.

Other global manufacturers such as Foxconn (Hon Hai) and Wistron, known for producing iPhones, as well as domestic companies like Dixon Technologies, have already received their incentives for the fiscal year 2022.

It's worth noting that the Ministry of Electronics and Information Technology also required companies, both domestic and foreign, to make certain investments to qualify for the incentives under the PLI scheme. Officials have stated that there have been no queries regarding Samsung's investments.

The mobile handset PLI scheme, launched in August 2020, has a total budget of Rs 40,951 crore spread over five years. The scheme offers graded incentives or cashback equivalent to 6 per cent of incremental sales achieved over the base year for the first and second years. The incentives reduce to 5 per cent for the third and fourth years and 4 per cent for the fifth year.

In Samsung's case, the 6 per cent cashback amounts to Rs 900 crore.

To be eligible for these incentives, global companies like Samsung must invest a minimum of Rs 250 crore in the first fiscal year, followed by similar amounts in each of the subsequent three fiscal years. Additionally, they need to produce incremental goods, such as mobile phones with an invoice value of Rs 15,000 and above, worth Rs 4,000 crore, Rs 8,000 crore, Rs 15,000 crore, Rs 25,000 crore, and finally Rs 50,000 crore over five consecutive years.

Indian handset makers, on the other hand, must invest Rs 50 crore in each of the first four fiscal years and achieve Rs 500 crore of incremental sales for each of the five fiscal years to qualify for the same incentives.

Apart from Samsung, no other global company managed to meet the incentive targets of the PLI scheme in the first year, FY21, primarily due to the disruptions caused by the Covid-19 pandemic and subsequent lockdowns, which severely affected electronics manufacturing supply chains. In response, India decided to extend the PLI scheme to six years from the original five. All companies were given the flexibility to choose any of the five years within the six-year tenure to meet the targets and claim financial incentives. Samsung opted to start with the original year of FY21.

In the first year of the PLI scheme, Samsung initiated the production of high-value phones in India while outsourcing the manufacturing of lower-segment phones to contract manufacturers. This strategy enabled the company to achieve its targets and qualify for the incentives.

In addition to Samsung, other global companies approved for incentives include Foxconn (Hon Hai) and Rising Star from Taiwan, as well as Wistron and Pegatron, known for manufacturing iPhones. The list of approved applicants also includes Indian companies like Dixon, Lava, Bhagwati (Micromax), Padget Electronics, UTL Neolyncs, and Optiemus Electronics.

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