ICRA: PLI Schemes Unlock India’s Manufacturing Capacity

Article By : ICRA

India's PLI schemes are critical to develop manufacturing capabilities for semiconductors, telecom gears, and medical devices, among others, according to ICRA.

The Government of India, with the intention of boosting India’s manufacturing, employment generation, import reduction and exports growth, has announced Production-Linked Incentive (PLI) schemes covering 14 significant sectors of the economy, involving a total outlay of around Rs3 trillion. The sectors have been strategically selected by the Government, considering India’s surging demand (solar, semiconductors/electronics, automobiles, to name a few), and are critical to develop manufacturing capabilities for semiconductors, telecom gears, medical devices, among others, according to ICRA in its latest Sectoral Strategy Report.

“Manufacturing capex forms around 20-25% of the total capex in India currently. The PLI scheme, launched with the aim of incentivizing manufacturing, is estimated to attract a capex of approximately Rs4 trillion for the next five years. It has the potential to generate employment for >3 million (skilled and unskilled labor) in India. Further, there will positive implications due to reduction in net imports, as incremental revenues are expected at Rs35-40 trillion over the next five years. Sectors under which PLI scheme have been announced currently constitute around 40% of the total imports. The scheme, spread across 14 sectors, can enhance India’s annual manufacturing capex by about 15 to 20% from FY23. However, potential challenges are expected from execution delays, increasing funding costs, availability of requisite infrastructure and delays in approvals,” said Rohit Ahuja, Head of Research and Outreach, ICRA.

Of the total manufacturing outlay, about 80% is concentrated towards electronics, automotive, and solar panel manufacturing, of which the focus towards semiconductors/electronics value chain is around 50% of outlay. Incentives are based on incremental production/revenue, spread over five years on an average across sectors. Some schemes are also linked to capital investments.

Coming to specific sector outlays, PLI for semiconductor manufacturing is at Rs760 billion, and aims to make India one of the leading manufacturers globally of this critical component. Shortage of semiconductor chips is leading to major production delays in autos and electronics globally as they are critical components used in automobiles and electronic items such as mobile phones/smartphones, televisions, washing machines, refrigerators etc. Given the fact that India’s dependence on semiconductors is expected to increase substantially, this PLI scheme is critical. For automobiles, the cabinet has approved Rs259 billion (out of Rs570 billion earmarked) and bids for the same have been closed. Additionally, the PLI for ACC battery is estimated at Rs181 billion with incremental production estimated at 50GW.

The PLI allocation of solar PV modules has been increased to Rs240 billion (from Rs45 billion). Considering India’s ambitious plans to expand solar generation, this scheme may continue to attract addition allocation every year. For pharma, an outlay of Rs249 billion is further bifurcated into Rs69 billion towards KSMs/DIs and APIs, Rs150 billion for pharma sector and balance Rs30 billion towards bulk drug parks. This apart, in telecom, Rs122 billion has been allocated, food processing has been given an outlay of Rs109 billion, textile exports of Rs107 billion, specialty steel Rs63 billion and drone segment Rs1.2 billion.

“Globally, India’s manufacturing output as a percentage of GDP is comparable with developed economies like the United States, the European Union and developing economies like Russia and Brazil, however, it is way behind China. Massive opportunity emerging for India, as the world looks to diversify away from China and the PLI scheme is a step in the right direction,” concluded Ahuja.

 

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