By Aditi Nayar
In FY2022, the Government of India (GoI) had introduced the Production-Linked Incentive (PLI) scheme, followed by the Design-Linked Incentive (DLI) scheme, targeting 14 key sectors to enhance manufacturing and exports, reduce imports, and attract investment and technology, thereby positioning Indian manufacturers on a competitive global scale. Of the total expected capex from the scheme of ~ Rs. 4 trillion, 30-35% had been invested as of May 2024, as major sectors with huge capex deployment are yet to start commercial production because of long gestation periods. With over two years since the scheme started, it is crucial to assess the progress, budgetary allocations, and future outlook for the sectors benefiting from these initiatives.
Semiconductors
In February 2024, the Government of India approved three semiconductor facilities, which began operations in March 2024. These facilities are projected to deploy 10-15% of their estimated capex of Rs 1.25 trillion by FY2025, with the first output expected in the second half of FY2026.
Mobile phone
With the incentive scheme, production and export of mobile phones from India have picked up. India has become net exporter of mobile phones in FY2024 from being a net importer in FY2015. The momentum is expected to be maintained in FY2025 as well with 35% YoY increase budgetary allocation.
Pharmaceuticals and medical devices
The budgetary allocation is driven mainly by manufacturing of identified pharma categories. The construction of three bulk drug parks is underway as of now with additional financial assistance from respective state governments.
With respect to the progress on Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs) and medical devices manufacturing, 27 KSM/DI/API out of total 48 have been approved under the scheme and 13 medical devices manufacturing plants have started operations from March 2024.
Food Processing
Incentive scheme for Ready to Cook (RTC) / Ready to Eat (RTE) foods and processed fruits and vegetables is outperforming the other categories, driven by demand for convenience foods, both domestically and globally. The GoI has launched incentive scheme for millet products to encourage their use in RTC/RTE products to promote their value addition and sales.
Drones and Drone Components
The incentive scheme for drones and drone components was notified in September 2021 and the first disbursement started in FY2023. The outlay of Rs 1.20 billion is estimated to be fully utilised by FY2025. As many as 23 firms were selected under the scheme, comprising of drone and component manufacturers. However, these companies are still in the early stages of ramping-up production due to long gestation periods.
Automobiles and Auto Components
The GoI had amended the scheme in January 2024 to enhance clarity and flexibility. Under the amended scheme, the disbursement of the incentive will take place from FY2025 onwards. Additionally, new Standard Operating Procedures (SOPs) were introduced to simplify the application process and reduce the compliance burden on companies.
Textiles
The Ministry of Textiles has reopened the application portal to invite new companies to participate in the scheme. With approximately Rs. 40 billion of unutilised budget in the ministry, the GoI may consider launching a second round in PLI (PLI 2.0), which may include additional products like bedspreads, lace, buttons, and zippers.
Telecom and Networking Products
Sales of telecom & networking products by PLI beneficiary companies have increased by 370% between FY2020 and FY2024. However, despite the substantial growth in sales, incentive disbursements in the telecom sector have been relatively low.
White Goods (ACs and LEDs)
The incentive scheme for white goods has attracted significant investments, boosted production, sales and exports. Considering the appetite of the industry to invest more under the incentive scheme, the GoI reopened the application window for 90 days in July 2024.
Advanced Chemistry Cell (ACC) Batteries
Three of the approved firms under the scheme have signed the Programme Agreement for setting up manufacturing facilities of 30 GWh ACC capacity. In April 2024, Ministry of Electronics and Information Technology (MEITY) under a global tender, has received seven times bids for 10 GWh manufacturing capacity to be awarded.
Specialty Steel
Five units have begun production in FY2024, and nine more units are expected to begin in FY2025 out of 57 entities. This is because, investments in the steel sector have a long gestation period and depend on procurement of various equipment, many of which are imported. The Government has been supporting the PLI beneficiaries to resolve issues, expedite clearances etc., to speed up the capex and accelerate the manufacturing in the sector.
IT Hardware
The PLI Scheme 2.0 (second round) was launched for IT hardware, as it expected broadening and deepening of the manufacturing ecosystem. In June 2024, ~8% of the capex has been deployed under both rounds of PLI. However, the incentive disbursements remained low despite launch of second round of incentive scheme with higher outlay in May 2023.
Solar PV Modules
ICRA expects the solar PV module manufacturing capacity in India to increase to over 60 GW by 2025 from the current level of ~37 GW, with improved backward integration into cell and wafer manufacturing. This is likely to further enhance close to 100 GW as the capacity awarded under the incentive scheme comes on stream. Some of the players have started commissioning plants for solar PV module manufacturing and others are expected to start in FY2025.
Despite successes in incentive scheme in some sectors, there have been some challenges. The GoI has been adjusting allocations, refining schemes, inviting applications in response to higher sector appetite etc. to enhance efficiency and uptake incentive disbursements across all sectors. Nevertheless, only 11% of the outlay is expected to be utilised by FY2025 (as per Budget Estimates). To improve the utilisation of the announced outlay, the GoI may introduce additional incentive scheme for new sectors like toys, leather and footwear, which could aim to attract anchor investors to these new fields.
(Aditi Nayar is the Chief Economist and Head- Research & Outreach at ICRA)
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