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Keeping in view India's vision of becoming 'Atmanirbhar', the Production Linked Incentive (PLI) scheme was launched by the government to promote domestic manufacturing post-Covid.
In this context, SBI Mutual Fund has published a report on PLI. According to the report, the government plans to add Rs.5 lakh crore of manufacturing capacity and give employment to 36 lakh people through this initiative. The government is willing to spend Rs 2.80 lakh crore spread over the next seven years in the form of financial capital support.
It is targeted to reduce import bills, enhance exports and boost sectors of strategic importance.
The scheme was launched by the government in March 2020 with three sectors but was later extended to fourteen sectors by the end of 2021.
Sectors like electronics, IT hardware, three of the pharma schemes (bulk drugs, pharmaceutical drugs, medical devices), food processing and telecom included under PLI in FY 2022. Consequently, these sectors also filed for their first subsidy in FY23. White goods and auto will likely receive their first subsidy in FY24.
The report says that subsidy commitments are weak for steel, textile and advanced chemistry cell (ACC) while it is aggressive for semiconductors, electronics, IT, telecom and pharma.
Among the key beneficiary sectors will be electronics. In fact, the sector saw massive jump in its export, which has led to healthy employment generation and has been instrumental in catalysing parallel investments. Also, it has successfully increased manufacturing and reduced the trade deficit for electronics and telecom. Global mobile stalwart Apple also aims to make 25% of iPhones in India from 5-7% currently.
Other sectors like solar and auto PLI projects also look promising as there has been strong participation in these sectors.
Pharma PLI has seen mixed response while there is a decent response to the PLI scheme in telecom, food processing and white goods.
The PLI scheme in semiconductors has seen just one awardee in June 2023 and still awaits more meaningful participation.
The challenges to the PLI scheme include intense competition from other nations to India’s manufacturing sector and a change of political regime. Despite fast track on government clearances for industrial projects in recent years, difficulties in land acquisition and environment clearance remain obstacles to select cases. The scheme will also need to be mindful of dynamic demand conditions in a sector which could reduce the capex enthusiasm.
India is also witnessing its manufacturing sector moment aided by multiple factors such as increased investment in physical and digital infrastructure over last decades, multiple taxation reforms, focus on ease of doing business and PLI could be an important catalysing force to this momentum.
It would still be too early to bring out a scorecard on the PLI scheme but the government is inclined to make the policy work and take required measures.
