A mobile phone assembler's operating margin improves from 3.1% to 5.4% over three years. The improvement is real, it is audited, and roughly two-thirds of it is a cheque from the Government of India under a scheme whose notification states that it runs for five years from a specified base year. The margin is a fact. Extrapolating it past the scheme's end date is an assumption, and the end date is a published one.
A new mall gives a shopkeeper three years rent-free to attract footfall. His monthly accounts look excellent, and they are honestly kept. Anyone valuing the shop in year two on those accounts is valuing a business that will start paying rent in year four, and the lease says exactly when.
A production linked incentive is the rent holiday. It flows into reported profit, it is entirely legitimate, and its duration is written down in a document anybody can read. The mistake is not counting it — it is counting it forever.
What the schemes actually are
| Scheme | How it pays | Where it usually sits |
|---|---|---|
| Production Linked Incentive | A percentage of incremental sales of qualifying goods manufactured in India, over a fixed base year, for a defined number of years, subject to a per-applicant ceiling | Other operating income, inside revenue from operations |
| RoDTEP | A percentage of free-on-board export value, notified per tariff line with a per-unit value cap, issued as transferable electronic scrips | Other operating income, or netted against export costs |
| State capital subsidy | A share of eligible capital expenditure, or a refund of state goods and services tax over a period | Deferred income on the balance sheet, released to profit over the asset's life |
| Interest subvention | A rebate on interest for specified sectors and borrower classes | Netted against finance cost, so it sits below EBITDA |
| Concessional tax rate | A lower statutory rate for qualifying companies | The tax line only — it does not touch operating margin |
The accounting, in one paragraph
Ind AS 20 governs government grants. A grant is recognised only when there is reasonable assurance both that the company will comply with the conditions and that the grant will be received. Grants related to income may be presented either as a separate credit or deducted from the related expense — the standard permits both, which is precisely why two companies in the same sector can show the benefit in different places. Grants related to assets are treated differently: Ind AS 20 requires them to be set up as deferred income and released to profit over the asset's life, and does not carry over the option in the international standard to deduct the grant from the asset's carrying amount. The presentation choice that does exist is disclosed in the accounting policies note.
What to check, and where
- 1The scheme notification
It states the incentive rate, the base year, the number of years, the eligibility thresholds and the overall ceiling. Ministry websites and the Gazette carry it. This is the primary source, not a news report about it.
- 2The amount the company recognised
Ind AS 20 requires disclosure of grants recognised in the period. Find the rupee figure in the notes and express it as a share of EBITDA.
- 3Where it was booked
Other operating income, other income, or netted against an expense. Only the first two are visible; the third means peer margin comparisons are quietly inconsistent.
- 4Whether it has been received
Recognised is not received. A large receivable from a government scheme sitting in other current assets, ageing across balance sheet dates, is a working capital item that has to be funded meanwhile.
- 5What management has committed to
PLI approval carries investment and incremental-sales obligations. Missing them means forfeiting the year's incentive. The commitments are in the scheme guidelines and often in the concall transcript.
- Compute EBITDA margin with and without the incentive, and label both
- Note the scheme end date in the same place as your forecast
- Compare against a peer on the same basis — either both including or both excluding
- Treat the incentive receivable as a working capital item until it arrives
- Ask whether the capacity built under the scheme is competitive without it
- Attributing an incentive-driven margin rise to operating leverage
- Applying an enterprise value to EBITDA multiple to an EBITDA a third of which expires
- Comparing a scheme beneficiary's margin against a peer who did not apply
- Assuming the scheme will be extended because similar schemes were
- Treating a recognised but unreceived incentive as though it were cash
A company's EBITDA margin rose from 4% to 7% over two years. The notes disclose a government incentive of ₹430 crore recognised in other operating income, against revenue of ₹12,400 crore. What is the most accurate reading?
Naye mall ne dukaandaar ko teen saal kiraya-mukt de diya taaki bheed aaye. Uska hisaab bahut achha lag raha hai, aur poori imaandaari se likha bhi hai. Par lease mein tareekh likhi hai jis din se kiraya lagega. PLI aur RoDTEP wahi kiraya-chhoot hain — paisa asli hai, galti sirf yeh maanne mein hai ki hamesha milta rahega.
- PLI and RoDTEP usually sit in other operating income, so they lift EBITDA itself.
- Ind AS 20 permits more than one presentation, so peers may not be comparable.
- Every scheme has a tenure, a base year and a ceiling in a public notification.
- Recognised is not received — check the incentive receivable across balance sheet dates.
- Compute margin with and without the incentive, and label which one you are using.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- pli scheme meaning for a listed company
- A Production Linked Incentive is a government payment to a manufacturer calculated as a percentage of incremental sales of qualifying goods made in India, over a fixed base year, for a defined number of years and subject to a per-applicant ceiling. Listed companies usually book it in other operating income inside revenue from operations, so it lifts EBITDA and operating margin rather than only the tax line. Every scheme has a tenure, a base year and a ceiling printed in its public notification.
- rodtep full form
- RoDTEP stands for Remission of Duties and Taxes on Exported Products. It rebates embedded duties and taxes on exports as a percentage of free-on-board value, notified line by line against the customs tariff with a per-unit value cap, and is issued as transferable electronic scrips. It replaced the Merchandise Exports from India Scheme from 1 January 2021.
- government grants in Indian financial statements are accounted for under
- Ind AS 20, which covers accounting for government grants and disclosure of government assistance. A grant is recognised only when there is reasonable assurance both that the company will comply with the attached conditions and that the grant will be received. Grants related to income may be presented either as a separate credit or deducted from the related expense — the standard permits both, which is why two companies in the same sector can show the same benefit in different places.
- where is the PLI incentive shown in the profit and loss statement
- Most often in other operating income within revenue from operations, which places it above EBITDA and therefore inside operating margin, EBITDA multiples and peer comparisons. Some companies instead net the benefit against the related expense, in which case it never appears as a line of its own. The accounting policies note states which presentation was chosen, and the notes disclose the rupee amount of grants recognised in the period.
- how many sectors does the PLI scheme cover
- Fourteen, with a combined outlay of roughly ₹1.97 lakh crore announced across the Union Budget 2021-22 and subsequent approvals. They include large-scale electronics, pharmaceuticals, automobiles and components, telecom equipment, textiles, food processing, white goods, solar photovoltaic modules, advanced chemistry cell batteries, speciality steel, drones, medical devices and IT hardware. Each sector has its own notification setting the rate, the base year, the tenure and the ceiling.