Accounting of Production-Linked Incentives (PLI)

To incentivise and promote production, growth and capital investment in the country, the Indian government introduced PLI schemes for various industries.  Under the scheme, a cash incentive is given each year for a certain number of years (e.g., five years in the case of the white goods industry), basis fulfilment of specific conditions and the incentive amounts are determined as a percentage of incremental sales. There are several conditions, but the two most important conditions relate to cumulative investment and incremental sales (over the base year).  

The qualifying investments include plant and machinery and capital investment in research and development but exclude, for example, land.  Incremental sales are determined basis consolidated financial statements, including global sales; however, the capital investment and production should occur in India.  

The grant is provided each year, provided the conditions relating to cumulative investment and incremental sales are met for that year. In the case of white goods, if the grant for Year 1 is earned because the entity fulfilled the cumulative investment and incremental sales condition in that year, but the entity subsequently exits from the scheme, the grant earned in earlier years is clawed back.  However, in the case of pharmaceutical sector, the requirements are not free from doubt. For example, consider the f