How PLI scheme for specialty steel can attract investment for this sector

The specialty steel industry is one amongst many which has been selected by the government for grant of incentives under the Production Linked Incentive (PLI) Scheme. The scheme seeks to incentivise domestic production of specialty steel through cash disbursals to be given to companies who make investments in certain specified product categories and generate incremental production through such investment. The objectives behind the scheme are attract investment in the sector and to generate additional employment opportunities due to resultant greenfield or brownfield expansions.

The government has allocated a budget of Rs 6,322 crore for disbursals to be made to applicants who are selected under the scheme. Such disbursals are to be made for a period of five years and are to be calculated as a percentage of the incremental production generated over and above the base year production; the base year for calculation of incremental production, basis the PLI scheme the way it stands today, is FY 2019-20.

The scheme, notified by the government on July 2021, seeks to attract investment in five broad categories of speciality steel (with various sub-categories having been specified), each having its own prescribed investment range and rate of incentives. The details of these broad categories are:

Product Category	Investment range (in INR crore)	Rate of incentives
Coated/ Plated Steel Products	200-700 Cr	3% to 10%
High Strength/ Wear Resistant Steel	1,000-2,750 Cr	3% to 10%
Speciality Rails	350 Cr	3% to 5%
Alloy Steel Products and Steel Wires	30-600 Cr	3% to 10%
Electrical Steel	700-5,000 Cr	7% to 15%

Like many other PLI schemes, this too has been well received by the industry. However, there are requests for modifications to the scheme and related guidelines so as to make the same more lucrative for potential investors.


In addition to inclusion of certain product categories and sub-categories in the presently existing scheme and guidelines, the industry is also requesting for inclusion of investments made in upstream facilities to be considered as permissible investment; currently, such investment does not qualify as permissible investment.

The rationale behind this is that if investment made in such upstream facilities, which is substantial, is not considered, it would make the Scheme less lucrative and incentives received might not be sufficient compared to the overall investment required to be made by the companies.

Requests have also been made seeking clarifications/ modifications in the existing description of certain sub-categories. This is important so that there is complete clarity between the intention of the government and the expectations of the industry with respect to coverage of the scheme.

Another demand from the industry is for merger of certain sub-categories so that maximum benefit can be availed by the interested players. This emanates from the fact that some products mentioned in different sub-categories are generally manufactured using a common manufacturing line (such as galvanneal and coated/ plated product and galvalume, coated/ plated product and galvalume and colour coated, etc.). Similarly, certain prescribed sub-categories consist of products which are raw materials and inputs of products covered under other prescribed sub-categories. However, the guidelines currently require investments to be made for many of these sub-categories separately.

Additionally, a newly set up manufacturing line may be used for manufacturing eligible products as well as products for which benefits are not available. There has been a request from the industry that where investment is made in such manufacturing lines, the same should be considered as eligible investment for the purposes of the scheme – whether this is allowed at all, and if allowed, whether it is allowed in full or basis some prescribed methodology, remains to be seen.

The guidelines currently provide that the date of payment to vendors would be considered as the date of investment made by the applicant. However, the request from the industry is that the date of capitalization in the books of accounts should be considered as the date of investment made; this would be in line with the guidelines laid down in other PLI schemes.

The application window under the scheme has already been extended once and is currently April 2022; with suggestions pouring in and ongoing discussions, the industry is eagerly awaiting for another extension.

The industry is also hopeful that revised guidelines, considering the requests made by them, will be issued – this will ensure greater participation from the industry players and would be instrumental in making the scheme a success.

(The writer is Indirect Tax Partner, EY India)