Govt panel may approve ₹4,000 cr new PLI scheme for specialty steel next month

A top government panel is likely to approve a ₹4,000-crore production linked incentive (PLI) scheme next month to boost the domestic production of specialty steel and curb imports, two persons in the know of the development said.

The approval from the empowered group of secretaries (EGoS) will pave the way for the launch of the second phase of the incentive scheme (PLI 2.0) for value-added steel. The scheme had got delayed due to poor demand for the alloy, procedural issues and lacklustre participation from domestic companies in the initial round of the scheme, which was approved by the government in 2021.

The scheme is being revived to leverage strong demand conditions and stable prices, as India seeks to move up the steel value chain and compete with advanced steelmaking economies like Japan and South Korea. The domestic steelmakers have also given inputs to the Union steel ministry about their participation in production of import substitution products in the country and strengthen the Atmanirbhar Bharat initiative.

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“We have finalised PLI 2.0 without much changes from the earlier scheme. The scheme parameters are based on inputs from the industry and funds for supporting it would come from balance remaining in PLI 1.0 of about ₹4,000 crore. The terms of the scheme would be similar to other PLIs that incentivize production of identified products for a period of up to five years," said the first of the two persons cited earlier, both of whom spoke on the condition of anonymity.

Specialty steel is value-added steel where finished steel is given coating, plating, or heat treatment to transform it into high value-added steel that can be used in various strategic sectors such as defence, space, power, automobile, and specialized capital goods.

New scheme for three years

As PLI 1.0 was operational for just about two years, the new scheme may be kept running for three years starting FY26, said the second person. After the approval of the secretaries' panel, the scheme could be launched from FY26 after getting a final fund clearance from the finance ministry and scheme clearance from the Department for Promotion of Industry and Internal Trade (DPIIT) under the Union ministry of commerce and industry.

The government closed the PLI 1.0 window early last year as applications for just about ₹2,300 crore incentives out of the budgeted ₹6,322 crore were received since the launch of the scheme in 2021, while local production of specialty steel did not take off as expected.

Now, with steel cycle turning positive this year, the government wants to relaunch PLI for steel as PLI 2.0 with minor changes and a few additions so that production of specialty steel in the country takes off in a big way and helps stem the outgo of precious foreign exchange (forex) reserves. In FY21, India imported 4 million tonnes of specialty steel, leading to a forex outgo of about ₹30,000 crore.

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“Considering that PLI 2.0 aims to address the gaps observed in PLI 1.0, it holds promise for greater interest from steel producers. The unutilized funds from PLI 1.0 reflect the potential for improvement in the scheme's design and engagement process. For PLI 2.0 to capture their interest, it must offer compelling fiscal incentives—perhaps through enhanced production-linked incentives such as accelerated depreciation on new investments, and clearer compliance guidelines," Krishan Arora, Partner, Grant Thornton Bharat, said.

Arora added that aligning the scheme more closely with the current needs of the steel industry, such as support for advanced manufacturing technologies and sustainability initiatives, could also make it more appealing. “While the foundational terms remain the same, tweaking the benefits and addressing past challenges could significantly enhance the attractiveness of PLI 2.0 for steel producers," he said.

Eagerly awaited

The steel industry is also eagerly awaiting the launch of the revised PLI scheme for specialty steel to take advantage of current market conditions. “The ministry of steel, along with other relevant government departments, has been proactively engaging with the PLI beneficiaries to resolve issues faced by companies and help them meet their commitments. Measures have also been taken to expedite clearances for projects, issue standard operating procedures for Indian visa for experts, and to address the concerns of the participating companies by continuous engagement with the stakeholders. In view of this, and the significant growth of the economy, especially infrastructure, the demand for specialty steel shall remain high and the new scheme will achieve its desired objective," said Aditya Shrivastava, general manager, Jindal Steel and power Ltd.

PLI 2.0 is also important to initiate the manufacture of special steel grades that were available for incentives under the existing scheme but where no MoU could be signed till the close of the application window.

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Queries sent to steel ministry remained unanswered till press time. But an official said on the condition of anonymity that the steel ministry’s proposal for PLI 2.0 may get clearance in a few weeks so that applications for the expanded PLI could be started later this year and incentives starts flowing in from FY26.

Mint had reported in May last year that PLI 2.0 is being examined for launch soon.

Apart from possibly including defence-grade mixed alloy steel and automobile-grade steel that were not covered under PLI 1.0, the PLI 2.0 is also expected to support manufacturing of capital goods required by the steel sector and other production-related materials in short supply in the country. However, a final decision on new additions is yet to be taken.

The PLI 1.0 provided sops under three incentive slabs varying between 4% and 12% on incremental production. The level of incentives may be maintained at the same or higher level under PLI 2.0, as its focus would be on developing domestic manufacturing ecosystems for high-value capital goods.

Minimizing import dependence

The ministry of steel notified the first PLI scheme for specialty steel on 29 July 2021. The scheme aimed at enhancing exports and minimising dependence on imports for high-end steel. The scheme was expected to help the Indian steel industry mature in terms of technology and move up the value chain. PLI 1.0 had a budgetary outlay of ₹6,322 crore. The duration of the scheme was five years.

The PLI 1.0 covered 5 product categories and 19 sub-categories, with a maximum incentive of ₹200 crore per year per group company. Though 67 applications were received under the scheme for manufacture of 30 million tonnes (MT) of specialty steel, MoUs in respect of only 57 applications from 27 companies were signed on 17 March 2023 for steel capacity of about 25 MT. No MoU could be reached for five steel categories and sub-categories.

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The government had expected to attract an investment of approximately ₹40,000 crore under PLI 1.0, and now hopes to surpass that amount under the proposed incentive scheme.

Apart from bringing investment in manufacture of grade of steel not getting made in the country to support growing domestic consumption, the anticipated PLI-led manufacturing boom is also expected to rapidly grow export market for such products. India, which became a net exporter of steel with an export of 6.72 MT of finished steel against the import of 6.02 MT in 2022-23, turned net importer again in FY24 with exports of 7.49 MT of steel versus imports of 8.33 MT. In April-September of FY25, India has imported 4.7 MT of steel while exporting only 3.6 MT. The government intends to change this by seeking new export markets for India's specialty steel.