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PLI scheme to unlock India’s manufacturing capacity: ICRA

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PLI scheme to unlock India’s manufacturing capacity: ICRA

The Production-Linked Incentive (PLI) scheme will unlock India’s manufacturing capacity as well as support in attracting about Rs 4 lakh crore of capital expenditure over the next five years, rating agency ICRA said.

With the aim of boosting India’s manufacturing, employment generation, import reduction and exports growth, the government announced the PLI scheme covering 14 significant sectors of the economy. 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).

Source: ICRA

Rohit Ahuja, Head of Research and Outreach, ICRA says, “Manufacturing capex forms around 20-25% 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 lakh crore for the next five years.”

Further, it has the potential to generate employment for 30 lakh (skilled and unskilled labour) in India. “There will positive implications due to reduction in net imports, as incremental revenues are expected at Rs. 35-40 lakh crore over the next 5 years,” Ahuja adds. “The scheme can enhance India’s annual manufacturing capex by 15 to 20% from FY23.”

However, Ahuja observes, 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% is concentrated towards electronics, auto, solar panel manufacturing of which the focus towards semiconductors/electronics value chain is 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.

PLI for semiconductor manufacturing is at Rs 76,000 crore 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. 25,900 crore (out of Rs. 57,000 crore earmarked) and bids for the same have been closed. Additionally, the PLI for ACC battery is estimated at Rs. 18,100 crore with incremental production estimated at 50 GW.

The PLI allocation of solar PV modules has been increased to Rs. 24,000 crore from Rs. 4,500 crore. For pharma, an outlay of Rs 24,900 crore is further bifurcated into Rs. 6,900 crore towards KSMs/DIs and APIs, Rs 15,000 crore for pharma sector and balance Rs. 3,000 crore towards bulk drug parks.

In telecom, Rs. 12,200 crore has been allocated, food processing has been given an outlay of Rs. 10,900 crore, textile exports of Rs. 10,700 crore, specialty steel Rs. 6,300 crore and drone segment Rs. 120 crore.

“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,” Ahuja concludes.

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