– By HDFC Asset Management Company
India has announced Production Linked Incentive (PLI) Schemes for 14 key sectors with an outlay of over $26 billion to enhance manufacturing and exports. The purpose of the schemes is to attract investment in key sectors, ensure efficiency and make Indian companies globally competitive. PLI schemes are expected to significantly boost employment and economic growth over the next five years. Under this announcement the government announced re- allocation of Rs 18,000 crore to 6 new sectors, such as chemicals, shipping containers, and inputs for vaccines. Despite the reallocation, these new sectors are expected to add to the Government’s intention to boost manufacturing, and vision of an Atmanirbhar Bharat. PLI has resulted in capacity building in some sectors, and this push towards new industries bodes well for the growth in manufacturing and exports in India.
In spite of a muted start, the impact of the PLI scheme has been positive, showing resilience and promise. In June 2023, a review of the PLI Scheme was done by the Ministry of Commerce and Industry (MCI). As per the review, since the disbursements have followed a lag, only Rs 2,900 crore of the total allocation of Rs 1.97 lakh crore was disbursed by the end of FY2023 in 8 sectors – Large-Scale Electronics Manufacturing, IT Hardware, Bulk Drugs, Medical Devices, Pharmaceuticals, Telecom and Networking Products, Food Processing and Drones and Drone Components.
While these statistics may not sound encouraging, PLI has helped in creating a significant impact since its launch in 2020. There has been an increase of 76% in Foreign Direct Investment in the manufacturing sector in FY2022 ($21.34 billion) compared to previous FY2021 ($12.09 billion). An application count of 733 approved in 14 sectors with expected investment of Rs 3.65 lakh crore. 176 Micro, Small and Medium Enterprises (MSMEs) among PLI beneficiaries in sectors such as Bulk Drugs, Medical Devices, Pharma, Telecom, White Goods, Food Processing, Textiles and Drones. An actual investment of Rs 62,500 crore realized till March 2023, which has resulted in incremental production and sales over Rs 6.75 lakh crore, employment generation of around 3.25 lakh, and a Rs 2.56 lakh crore boost in exports till FY23.
As certain research papers have claimed that the value addition in the manufacturing of smartphones in India has been restricted to mere assembling of the components, that is not completely true. India started at the bottom of the value chain with the assembly of smartphones, and has expanded its presence to manufacturing of casing and sub-components of a smartphone. This increased presence has led India’s value addition in manufacturing of smartphones to grow from just 2% in 2015 to about 15% in 2022. Further, the PLI Scheme is increasing the localisation of manufacturing, with major smartphone companies shifting their bases to India. With suppliers of major smartphone companies like Foxconn, Wistron and Pegatron, increasingly manufacturing high-end phones in India, value addition in manufacturing of smartphones in India has nearly touched 20%.
India is in the initial phase of expansion in multiple sectors. But with many more phases to come, the Indian Economy is expected to grow subsequently. This transformation is emblematic of India’s broader economic trajectory, as it expands its footprint across various sectors. This marks just the beginning of India’s journey towards a more prosperous and self-reliant economy. With the PLI Scheme, it is expected that there will be an increase in production, employment generation, and economic growth, placing India competitively on the domestic and global stage.
(The article is authored by HDFC Asset Management Company.)
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