Designed to incentivise manufacturing across 14 sectors, PLI has become a rallying point for the government’s desire to promote local manufacturing and turn India into a global exports hub. The fundamental premise is for manufacturers to pump in money to increase production in their factories, and then for the government to pay back a share of the value of incremental production over a five-year period. Business Today Magazine decodes the scope, challenges for the scheme
With PLI boosting manufacturing in India, the government hopes to add more muscle to India's GDP, and create 6 million jobs between 2021-22 and 2026-27, per a written submission in the Rajya Sabha by Rameswar Teli, Union Minister of State for Labour and Employment
"The government is going to spend nearly Rs 2 lakh crore in incentives, which would be on average, 5% of the incremental production. This means the GDP is set for a $520-billion boost through PLI over the period,” said Amitabh Kanta G20 Sherpa and former CEO of Niti Aayog
According to an analysis by S&P Global’s CRISIL Market Intelligence & Analytics (MI&A), PLI scheme could attract Rs 2.76 lakh crore worth of capex from the private sector from 2020-21 to 2026-27. That is expected to help increase India’s average industrial capex to Rs 5.7 lakh crore a year between 2022-23 and 2026-27, from Rs 3.7 lakh crore a year in the previous five years. It would also enable private capex to form 9% of the country’s total capex over the next five years
Government officials are optimistic about the prospects of the PLI scheme. “The Covid-19-related disruptions impacted the PLI in the initial phase as they delayed investments, setting up of plants by manufacturers and their projected targets. But with economic activities now back to normal, 2023-24 will be the first year of production for many large sectors,” a senior official told BT. The government expects the incentive payout to peak in 2025-26 and 2026-27
According to Mohammad Athar, Partner-Economic Development and Infrastructure at PwC India, for certain sectors, the incentive could be as high as 8-12% compared to the average 4-6% for others. "The extent of jump in production may not be 20 times of the total incentive offered by the government,” he said. Essentially, if the incentive given by the government is higher than 5%, the value of the incremental production will not be 20 times, because the multiple exceeds 100%, which isn’t possible
According to experts, PLI implementation has been slow thus far, perhaps expectedly, but slow nonetheless. In 2021-22, the government spent just Rs 10 crore in incentive payouts (for mobile handsets, white goods - ACs and LEDs - and food processing industries put together), reflecting marginal increase in production
The slow start of PLI has also meant a lower number of jobs created. Against the projected 6 million new jobs over seven years, only some 300,000 jobs (or 5% of the total) have been created between 2020 and early-2023 through the various PLIs, according to former NITI Aayog CEO Parameswaran Iyer
Automotive, ACC batteries, specialty steel, solar PV and textiles are expected to invest Rs 2.21 lakh crore or 80% of the overall estimated PLI capex. In comparison, the five large industries would receive incentives in the range of 4-14%. According to experts, lower or no allocation to a sector indicates the authorities’ estimate of poor activities in those industries. And that is a worry because some of these sectors are part of the five big guns that are expected to drive maximum capex within the scheme
Stringent incentive criteria has been a downer for PLI, which may hamper the capex plans of companies that avail the scheme, as per experts. Plus, the methodology of incentive calculation is a bone of contention between the government and the private sector, across industries
With the PLI scheme covering 14 sectors, well over 60% of India’s manufacturing GDP, stakeholders and experts are now placing their bets on efficient implementation of PLI over the next couple of years, with significant increase in production and incentive disbursement being crucial from 2023-24
According to Hetal Gandhi, Director-Research at CRISIL MI&A, some Rs 30,000 crore or 11% of the projected capex under PLI has already been invested by private players. In the three years till 2026-27 from now, as per CRISIL MI&A’s analysis, 66% or over Rs 1.81 lakh crore of investments are due. If they materialise, India would be well on its way to becoming a manufacturing and exports powerhouse