Big bets on PLI schemes to find pot of gold at the end of the rainbow

The govt is going all out to push its ambitious production-linked investment scheme to help Indian manufacturing scale up and make India an export hub

Last week Amitabh Kant, chief executive (CEO) of NITI Aayog, told 40 top corporate honchos that they should not treat the government’s production-linked incentive (PLI) sch­eme as a subsidy programme, but as a support from the government to build size and scale in manufacturing so they can bec­ome global champions, as well as integrate with local small and medium enterprises (SMEs).
 
He assured India Inc that with regard to the PLIs, they could co­me to the government at any time — be it NITI Aayog, admin­istrative ministers or empowered comm­ittees — for help in resol­ving their problems or even for some hand-holding. But Kant also made it plain that the key to the success of the scheme would be the speed of implementation and delivery on the ground. In other words, companies would have to get cracking and scale up. Evidently, he was responding to many segments of the industry which either wanted to tweak their targets lower in the first year, like mobile device manufacturers who say they have already lost six months as permission came only last October, or the auto players who want the base year for implementation changed from FY18-19 to FY20.

 
The government is clearly putting all its resources behind the PLI scheme to meet its ambitious target to build scale in broad swathes of industry (13 segments have been identified) and ­form India into a global hub for exports.
 

Based on data from the Department for Promotion of Industry and Internal Trade (DPIIT), it is expected that in the next five years, corporate India will make incremental invest­ments of over Rs 2.7 trillion in as many as nine sectors for which target have been frozen. This is more than the Rs 1.97 trillion that the government has earmarked for the entire PLI scheme during the period.  Also, the scheme is expected to generate over $520 billion of additional production value. If all goes according to plan, the PLI scheme will be a huge job creator as well. It is estimated that employment generated in the nine sectors, either directly and indirectly, will be over 7.25 million.  The other key parameter is exp­orts, where value targets finalised in six segments is a whopping over Rs 13.5 trillion.

 
Auto components and the automobile sector as a whole will play a big part in this and in fact will account for the largest share of outlay, investments, exports and employment generation (apart from mobile devices, of course). The government has also given a huge push to electric vehicles by offering the second highest outlay (in the new list of 10 industry seg­ments) on advanced cell techn­ology for making batteries which are used for generating solar energy as well. 
 
The Automotive Component Manufacturers Association (ACMA) of India and the govern­ment have agreed on a plan to double automotive exports from $27 billion to $50-54 billion in 5 years. To do so, ACMA is looking at making an incremental inve­stment of over Rs 1.02 trillion and support new jobs of around 5.9 million. The stated aim firmed up with the government is to increase India’s share in the global auto components market (currently only 1.5 per cent) by at least three times.  In return, the outlay for the scheme is also the largest for any sector — Rs 57,042 crore.  

 
Pawan Goenka, managing director of Mahindra and Mahindra, who has spearheaded the plan, points out that there are some low hanging fruits which can be leveraged, too. India imports components worth over $25 billion annually — the bulk of it from China. This provides a big import substitution opportunity.
 
The ACMA also expects that the PLI scheme will help global auto components MNCs (tier 1) to establish sourcing hubs and mother plants in India, making it part of their global supply chain. Currently, auto components exports are worth only $6 billion.
 
The government has also earm­arked a substantial outlay of Rs 18,000 crore for PLIs in the manu­facturing of advanced chemistry cells. The target is to build a cell capacity for 50 GWH in five years ($6 billion in terms of value). It is expected that this will save around Rs 1.05 trillion in the import bill.

 
To put it into perspective, this cell capacity will support over 1 million electric cars or around 25 million two-wheelers. This clearly reflects the government’s plan to move quickly towards EVs.  Some auto players are already pushing for the PLI scheme to cover other components in making EVs. After all, the powertrain constitutes about 65 per cent of the cost of an electric vehicle and cells account for 35 per cent of that cost.
 
There are other areas where PLIs will play a crucial role in helping the government reach its target numbers. For instance, the PLI for specialty steel is expected to bring the second highest incremental investment after automotive (Rs 44,860 crore) as well as employment (457,000 jobs).  The pharma PLI announced last November is expected to help the country make incremental foreign exchange earnings of over Rs 1.96 trillion in five years, which is 13 times the government’s PLI outlay of Rs 15,000 crore.

 
Renewable energy, too, will get a big boost. The PLI scheme for solar PV modules is expected to bring in Rs 14,000 crore of fresh investment, help save over Rs 17,500 crore in the import bill, and increase value addition. And the white goods industry (ACs and LED TVs) will see an incremental production of Rs 1.68 trillion, out of which 38 per cent in value will be exported. What’s more, India, which imports virtually all of its laptops, tablets, and PCs, could well see a revolution. It could end up having a vibrant domestic production base of Rs 3.3 trillion and export 75 per cent of it.