In its latest sectoral strategy report, ICRA has analysed the cumulative positive impact of the PLI scheme. It says that the sectors have been strategically selected by the Government, considering India’s surging demand (solar, semiconductors/electronics, automobiles etc.), and are critical to develop manufacturing capabilities (semiconductors, telecom gears, medical devices).

The Government of India with the intention of boosting India’s manufacturing, employment generation, import reduction and exports growth had announced the Production-Linked Incentive scheme (PLI) covering 14 significant sectors of the economy involving a total outlay of Rs. 3 trillion.

Commenting on this, Rohit Ahuja, head of research and outreach, ICRA said, “Manufacturing capex forms around 20-25 per cent of the total capex in India currently. The PLI scheme, launched with the aim of incentivising manufacturing, is estimated to attract a capex of approximately Rs. 4 trillion for the next five years. It has the potential to generate employment for >3 million (skilled and unskilled labour) in India. Further, there will positive implications due to reduction in net imports, as incremental revenues are expected at Rs. 35-40 trillion over the next 5 years. Sectors under which PLI scheme have been announced currently constitute ~40 per cent of the total imports. The scheme, spread across 14 sectors, can enhance India’s annual manufacturing capex by ~15 to 20 per cent from FY23. However, potential challenges are expected from execution delays, increasing funding costs, availability of requisite infrastructure and delays in approvals.”

Of the total manufacturing outlay, about 80 per cent is concentrated towards electronics, auto, solar panel manufacturing of which the focus towards semiconductors/electronics value chain is 50 per cent 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 Rs. 760 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 Rs. 259 billion (out of Rs. 570 billion earmarked) and bids for the same have been closed. Additionally, the PLI for ACC battery is estimated at Rs. 181 billion with incremental production estimated at 50 GW. The PLI allocation of solar PV modules has been increased to Rs. 240 billion (from Rs. 45 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 Rs 249 billion is further bifurcated into Rs. 69 billion towards KSMs/DIs and APIs, Rs 150 billion for pharma sector and balance Rs. 30 billion towards bulk drug parks. This apart, in telecom, Rs. 122 billion has been allocated, food processing has been given an outlay of Rs 109 billion, textile exports of Rs. 107 billion, specialty steel Rs. 63 billion and drone segment Rs. 1.2 billion.

Ahuja further noted, “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 Chinaand the PLI scheme is a step in the right direction.”