The success of the Government’s nearly Rs 2 lakh crore Production Linked Incentive (PLI) schemes across 14 sectors so far can well fit the adage “nothing is more powerful than an idea whose time has come, credited to French poet Victor Hugo. India’s experiment with the idea of providing incentives on incremental sales of products manufactured in domestic units to create national manufacturing champions, attract foreign companies to set up units in India, encourage local companies to set up or expand existing manufacturing units and reduce the country’s reliance on imports, appears to be paying rich dividends.
India’s textiles sector has attracted investments of US$ 185 million and the PLI scheme overall is reaping benefits with more than 650 applications approved and reported investment of USD 6 billion in the first year which exceeds the target by 106 per cent, according to Sumita Dawra, Special Secretary (Logistics), Department for Promotion of Industry and Internal Trade. As per a CII-Ernst & Young study, Rs 28.15 trillion worth additional output is expected in the next 5 years with the scheme garnering high appreciation among MNC investors for the good opportunities in domestic manufacturing in sectors such as automotive, IT/ITes, chemicals and plastics. Further, Invest India data shows the scheme has touched 100 beneficiaries in the micro, medium and small scale industries across sectors such as bulk drugs, medical devices, telecom, white goods and food processing and other industry. The imperitives of modernising output, job creation, import reduction and export growth has led to a further build-up of the PLI scheme to cover automobiles and auto components, pharma, food products, high efficiency solar PV modules, advance chemistry cell and specialty steel, drones, some of which came into effect from 2021 and some from 2022.
Minister for Commerce and Industry Piyush Goyal has lauded the role of the PLI scheme for creating a robust manufacturing base. Agrees Radhika Rao, Senior Economist at DBS Group Research who points out that a wider manufacturing base is broadening the export mix led by high value products in the past two years compared to the previous five years. Besides Covid-driven segments (pharma, services etc.), the exports of manufacturing goods which make for two-thirds of the total Indian exports — led by engineering goods, project goods, chemicals, plastic, textiles and related products — rose 37 per cent yoy in FY22. Electronics jumped 41 per cent yoy last year. Rao attributes the push from PLI as a key factor among others which “contributed to this outperformance’.
Moreover, Rao points out, amongst the various supportive measures, recently fiscal incentives via the PLI scheme (sector-specific) have been a key draw for domestic and global manufacturers across automotive, electronics, speciality chemicals, etc.
“This complements the firm FDI trend, totalling USD 39 bn (gross) in the first half of FY23,” Rao adds.
The sectoral gains have been impressive. The USD 1.2 billion PLI scheme for India’s textiles sector has attracted investments of USD 185 million (Rs 1,536 crore) and 56 approval letters have been issued to applicants who met the eligibility criteria and informed the government.
The PLI scheme for textiles was launched to promote the production of man-made fibres (MMF) apparel, MMF fabrics and products of technical textiles in the country and to enable the textile sector of India to achieve size and scale. As a spin-off effect of the PLI, domestic cotton cultivation has also increased by 5 per cent to 125.02 lakh hectares and a brand named ‘Kasturi Cotton India’ has been launched to encourage the harvesting of cotton, as per the Government. According to Anil Agrawal, Additional Secretary, DPIIT, since the introduction of PLI scheme in the air conditioner sector, the industry has increased production. This is part of the PLI in White Goods & LED which has seen 61 investors setting up component manufacturing to strengthen the vision of Atmanirbhar Bharat. “The AC industry has seen significant progress with investments in component manufacturing,” says Manish Sharma, Chair, FICCI Electronics and White Goods Manufacturing Committee and Chairman and CEO, Panasonic India & South Asia. The total investment of Rs 6632 crore drawn by the scheme will help industry to improve local value addition from the current 25 per cent to 75 per cent in the next few years. Investment incentives in term of Production Linked Incentive (PLI) scheme for OEMs and ancillaries for future technologies have been offered in the automobile sector. The PLI scheme for Advanced Chemistry Cell (ACC) or battery, one of the major components of an EV, has been announced with a total outlay of Rs 80 billion. These positive domestic and global responses to the PLI programme is prompting further expansions. The Government is now working on a PLI for manufacturing of toys in the country for BIS compliant products whereby any product that complies with BIS standards for toys is an eligible product for PLI, according to Agarwal.
A new version of the PLI for textile sector, focusing on small and medium enterprises (SMEs) is expected to be finalised early next year. The scheme for garments, madeups and home textiles with investments between Rs 15 crore and Rs 45 crore is under consideration. This would be lower than the investment limits of Rs 100 crore and Rs 300 crore for the existing PLI scheme for textiles. Chairman of Apparel Export Promotion Council Naren Goenka points out that while the PLI for the apparel sector is helpful in reducing dependency on imported fabrics over time and increasing investment and employment, the present PLI scheme has not received many applications. “The requirement of minimum investment of Rs 100 crore-300 crore was very high. Capacity development in the apparel sector is the need of hour. Hence PLI- 2 should be brought out for the apparel sector with provisions such as investment requirement for RMG units at Rs 10 crore or more for machineries and equipment. This scheme should be extended to all apparel units and incentive rate should remain uniform for all the 5 years that the scheme will run,” says Goenka.
The Government’s plan to soon introduce PLI in chemical and petrochemical sector is strategic as countries are looking at India as an alternate location to China for procuring chemicals. “An important achievement of the PLI scheme is in helping to reduce India’s dependence on imports from China, points out Deepak Mehta, Chairman, FICCI Chemical Committee and CMD, Deepak Nitrite.
“The PLI scheme promotes indigenization amidst the high cost of manufacturing in Europe,” says Mehta.
As India looks at the capacities of 38 GW in polysilicons, 56 GW in ingot and wafers, 70-80 GW in cells and 90- 100 GW in modules in the renewable energy space to cut reliance on imports of solar PV modules and cells, the Rs 19,500 crore solar PV module PLI scheme is likely to go a long way in developing the supply chain for solar PV module manufacturing in India. India needs to install approximately 25-35 GW every year and the incentives will make domestic manufacturing self-sufficient and capable as suppliers to the world in solar power equipment as in supplying wind-energy equipments.