How has this evolved and become more accommodative, and how does the PLI scheme feed into this?
PLI scheme right off the surface is progress, but how will the government make it a success, and what accommodations can we expect from the upcoming 2023 Budget?
In 2013, the contribution of the manufacturing sector towards India’s GDP was 14%, and ten years later it remains near 14%.
Several policies were announced by the government and respective ministries to enrich this contribution to above 20%.
Make in India, Atmanirbhar, and the PLI Scheme initiatives are synonymous with the phrase ‘India will be the next China’. Yet, these initiatives have been futile when we
at the GDP data.
In 2020, the government realised the lacunas of the previous initiatives, came back to the drawing board alongside the ministries and drafted the Production
Linked Incentive scheme in April 2020.
Lion’s share of the PLI allocation journeyed to Large Scale Electronics (LSE) and applications were opened twice to entice mega manufacturers. As of date, 32 applicants have been approved, nearly INR 800 crores have been disbursed by the government, additional
investment of INR 4,784 crores flooded into India, and have resulted in job creation for nearly 41,000 workers.
These metrics are exclusive to only the LSE sector of the PLI.
When we consider the PLI schemes that were announced across the spectrum, 717 applications were approved under the scheme.
As we have progressed through time since the first announcement, new sectors were added to the list. In April 2020, only three sectors fell under the umbrella, progressing to 13 in November, and 14 in September 2021.
In contrast to the previous initiatives, we are witnessing tangible on-ground progress among many manufacturing firms which would subsequently translate into robust GDP growth from the sector and employment opportunities, let alone invigorate the domestic production and Atmanirbhar story.
We are seeing listed entities like
, , and setting up their manufacturing facilities under the PLI scheme at the time of writing this note. These are firms from various industries and this goes on to highlight the pervasiveness of the PLI scheme.
Apple’s major suppliers – Foxconn, Pegatron and Wistron – are setting up manufacturing units or already have set up manufacturing units under this scheme.
As I mentioned earlier, this is progress, yet distant from tagging it as a success given how the government initially had an ambition for manufacturing to contribute 25% to India’s GDP.
Applications of a handful of companies we invest in were initially approved but had to amend their plans.
To cite a couple,
had to pull out of the PLI due to the mismatch between their timeline of setting up their lithium-ion manufacturing unit with the timeline embedded in the PLI guidelines; decided to withdraw owing to the minimum capex threshold requirement when they could set up the manufacturing unit with one-fourth that cost.
Here are some of the impediments of the scheme which would be talking points of the upcoming budget. Resolutions in these areas at this juncture would be a stroke of brilliance:
Minimum Investment
The minimum investment under the Textiles PLI stands at INR 100 Crores and there are companies in this space who had their application approved while they do not even have one-fourth of this amount in liquid assets nor are they in a position to raise debt.
Similarly, for a domestic phone manufacturer, the minimum investment amount stands at INR 200 crore over four years.
The minimum investment amount eliminates a major portion of the population from participating in this scheme – when we consider the fact that we owe it to the SMEs for 40% of our country’s exports – according to data from RBI.
Investment Outlay Criteria
The minimum investment irrespective of the sectors is to be executed over four years. Considering a major portion of the PLI scheme is dedicated to industries operating in cutting-edge technology – advanced chemistry cells, IT hardware, drones and electronics, companies will demand a long-term approach as technology is constantly evolving – the only thing constant is change – in these sectors.
This is not the case with textiles for example. Hence, a modification in this area would open the doors for several large and medium players who commit for the long term but modify in the short term.
As opposed to previous initiatives, the government has been receptive to on-ground developments, the subtle tepidness, and has been coming up with optimal tweaks.
We are seeing real on-ground developments in terms of capex, employment and production as the PLI scheme gain traction.
With the right skim at the right time, PLI will not only be India’s success story but something African industrial regions would look up to in the decades to come.
(The author, Sreeram Ramdas, is smallcase manager and vice president, Green Portfolio)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
