The PLI schemes have been introduced to boost domestic manufacturing, enhance employment opportunities, reduce imports and increase exports, which is likely to result in a positive Current Account Balance for the country. The schemes have been triggered at an opportune time to grasp the attention of leading manufacturers in the world looking for a cost-effective and competitive location to set up their facilities, post-disruption due to the pandemic.
During the budget speech in February 2022, the hon’ble Finance Minister mentioned that the PLI scheme has the potential to create 60 lakh new jobs and an additional production of 30 lakh crore during the next 5 years.
The PLI scheme holds huge employment generation potential (both direct and indirect) and is designed to significantly contribute to India’s GDP. Basis estimates from Credit Suisse, the PLI scheme can generate $150 billion in incremental sales by the Financial Year 2027, adding up to 1.7% to the GDP.
NITI Aayog rightly caught the pulse with the introduction of PLI schemes for sunrise sectors which will well-equip India to board the train for the adoption of innovation and futuristic technologies and unleash the potential of the Indian manufacturing industry to scale up and engage in value-added production. Also, the shift of focus from incentivizing capital investment to performance and ambition to create champions in manufacturing has not only triggered the linkage of Indian manufacturing units with the global supply chain but simultaneously is acting as a catalyst for backward integration with the MSME sector in the country and is helping in creating a ripple effect on the Indian economy.
The success of the PLI schemes announced in the Union Budget 2021-22 has set the ball rolling for more ambitious schemes for new sectors including the most desirous initiative for the development of the semiconductor and display manufacturing ecosystem in India.
The proposals are already underway to include manufacturers of BIS-certified toys, footwear and leather articles, bicycle, chemicals, CCTV components, and high-end components for electronic products like smartphones, servers and computers under the ambit of PLI. Recently, the second round of PLI for telecom and networking equipment was introduced which had a major thrust on design-led manufacturing and gained a lot of traction amongst domestic manufacturers. The focus is to build the entire manufacturing ecosystem throughout the product lifecycle.
While some of the PLI schemes such as mobile phones, white goods, food, telecom, auto & auto-components, etc have seen an upswing in investments making the government realize its objective of self-reliant Bharat in the mid to long run, the data for investments made in other PLI schemes is not readily available for the industry to get a clear insight on the creation of value chain in many other sectors where the PLI schemes have been rolled out.
Therefore, it also becomes significant for the government to have a unified system for tracking the progress of the said PLI Schemes. Currently, every nodal ministry is monitoring the progress of each scheme that comes under its ambit and it is therefore recommended to have a quarterly dashboard of investments made, employment generated and disbursals made for each of the PLI schemes which would help the private equity investors, industry, and other stakeholders to plan investment, loan disbursement and other value chain requirements. At the same time, it would also help the government with future policy formulations required for achieving its goal of Aatmanirbhar Bharat.
In addition to the above, the PLI disbursements must be made in a time-bound manner and the value addition details being asked for in a few PLI schemes such as auto, solar module manufacturing and advanced chemistry cell should be made limited to self-declaration or certifications up to Tier 1 component manufacturers.
The consideration for expanding PLI to other sectors is also driven by global trade. For instance, the Russia-Ukraine situation has resulted in a global shortage of shipping containers and therefore, container manufacturing potential in India may be exploited through PLI.
Also, the recent initiatives of the government such as the National Green Hydrogen Mission introduced with a budgeted outlay of INR 19,744 Crore is a welcome step to introduce PLI for promoting domestic manufacturing of green hydrogen. Speaking of interesting opportunities, the recent inclusion of e-sports as India’s mainstream sporting discipline is yet another opportunity to attract global gaming device manufacturers to set up operations in India. There is also untapped potential in the auto sector which can be realized by extending the scheme to component manufacturers of intermediates for the battery ecosystem and by introducing a second list for auto OEMs and auto component manufacturers.
Further, both Union and state governments in coordination have been taking numerous steps to boost manufacturing in India by introducing various schemes such as bonded manufacturing scheme (revamped in FY 19-20), state incentives (updated every 5 years), concessional corporate tax rate benefit (introduced in FY 2019-20) to new manufacturing companies to promote Make in India.
Further, keeping in tandem with the industry promise to bring new capital investment in India, the concessional tax rate benefit has now been extended to the new units which commence manufacturing on or before 31 March 2024 vide Union Budget 2022-23. These schemes when applied appropriately by the industry are likely to yield better IRR and enhanced cashflows which would truly support India’s ambition to become the manufacturing hub for the world.
Now, when the government is taking possible steps, it is also important for the industry to play its cards right by ensuring focused project management, appropriate planning of the market route, shifting supplier base to India, reducing cost by utilizing common infrastructure by forming sectoral clusters, better governance, and competitive pricing in global markets.
The equivalent sustenance from the industry by infusing requisite funds, maintaining the right documentation, appropriate training of employees and robust documentation shall assure smooth implementation of the policies with the desired results. Moreover, the industry needs to ensure that the government-aided benefits are utilized for scaling-up businesses only and not for activities such as internal debt servicing, building cash balances and other assets, etc., which are company-specific and are not productive enough in the nation’s interest.
The next step for the government would be to continue creating an amicable environment, by aligning the rate of customs duty on raw material, intermediates, and finished products with the PLI schemes, supplementing the existing schemes with further schemes focussed on incentivizing value addition and R&D to send the right signals to foreign investors who have started placing their bets on India as a preferred destination. This will usher India to a new dawn of being self-reliant and find its rightful place in the global supply chains looking at diversification.
((The authors Saurabh Agarwal and Kunal Chaudhary are tax partners at EY India. Views expressed are personal)
