PLI is key to boosting India’s manufacturing and export capabilities through backward integration
By Manish Sharma
The Cabinet’s nod on the Production-Linked Incentive (PLI) for white goods (ACs and LEDs) worth Rs 6,238 crore will give the necessary fillip to the manufacturing industry. What does it mean for the economy and the industry?
Let me to give you an overview of our appliances and consumer electronics (ACE) industry. India’s ACE industry stood at Rs 76,400 crore ($10.93 billion) in 2019, and is expected to double to reach Rs 1.48 lakh crore ($21.18 billion) by 2025. Component manufacturing ecosystem forms the backbone of the ACE industry. Component manufacturing not only gives the necessary impetus to the electronics industry, but also provides a major boost to the economy at large—reduced dependencies on import for components lead to 100% local production, right from raw materials to assembly and employment generation, including training and skilling India. The PLI acts as the key catalyst for the industry, complementing the agenda.
The government introduced the PLI scheme to strengthen domestic manufacturing, increase self-reliance and reduce import bills, in April 2020. It offers incentives to companies on incremental sales from domestically-manufactured products. It also aims at inviting foreign entities to establish bases in India and encourages local companies to set up or expand existing manufacturing units. Companies can bring globally-integrated manufacturing capabilities for high-value output, thereby providing higher returns to upstream producers, besides employment opportunities. It strategically drives India into key segments of global value chains (GVCs).
Let us consider the Indian AC industry; in 2020, the AC market was pegged at around 75 lakh units. Of this, about 25 lakh units were imports, which have come down significantly due to ban on import of ACs with refrigerants. From an industry point of view, I expect the market to touch 90 lakh units this year, and 80-85 lakh of these will be manufactured locally. Currently, ACs have 25% local value-addition, and with the PLI this can go up to 75% in the next three years.
Strategically speaking, the PLI is key to boosting India’s manufacturing and export capabilities through backward integration. The approval of the PLI for white goods is encouraging. As component manufacturing is a key beneficiary of the new policy, indigenous AC manufacturing will get a fillip.
This will also enable design-led manufacturing, fuel innovation and drive component exports, along with finished ACs, from India. In the foreseeable future, I see a lot of exciting developments from establishing a global supply chain to achieving economies of scale in manufacturing across component design capabilities and growth of MSMEs and SMEs.
The author is chair, FICCI Electronics & White Goods Manufacturing Committee, and president & CEO, Panasonic India