PLI schemes boosting jobs and manufacturing in white goods sector

There have been of late conversations about the efficacy of India’s PLI schemes. It has been suggested that the schemes are designed only for big businesses, only assembly of components is being achieved, no significant FDI inflow has been seen, no substantial generation of employment has taken place and that companies have not been able to claim incentives for various reasons. This article attempts to analyse the implementation of the PLI scheme for white goods, covering air conditioner and LED lighting industries. Make no mistake, PLI schemes under Make in India mission for the sector is thriving is making a deep impact on the white goods sector in India.

The PLI scheme for white goods was approved in April, 2021 with an outlay of Rs 6,238 crore, to be implemented from FY22 to FY28 over a 7-year period. The first disbursals of incentives will take place as audited results of these companies are available later this year.

The geographical spread of this scheme is noteworthy. Manufacturing facilities have been set up at 125 locations across 16 States – Maharashtra, UP, AP, Rajasthan, Uttarakhand, Gujrat, Haryana, Tamil Nadu, Himachal, Karnataka, Goa, Dadra, MP, Punjab, Telangana and West Bengal. As against an estimate of 47,851 direct jobs for the full scheme period, 37,981 direct jobs have already been created till March, ‘23. 

Industry, both domestic and foreign, has responded very well. 

Total 64 companies have been approved with committed investments of Rs 6,766 crore. 13 foreign owned companies like Daikin, Hitachi, LG, Mettube, Midea, Mitsubishi, Nidec, Panasonic etc. are investing Rs 2,090 crore, which is about 30% of all investments. The 51 domestic companies include Amber, Bluestar, Crompton Greaves, Dixon, Havells, Hindalco, IFB, Orient, Surya, Syska, Voltas, Wipro – there are 30 large, 14 medium and 7 small companies. Hence, there is a healthy mix of multinational and domestic companies committing to manufacturing in component ecosystems.

A central design aspect of the scheme is that it does not incentivise production of finished goods. Only production of those components of ACs and LEDs are permitted which are not being manufactured in India with sufficient capacity, like compressors, aluminium stock for foils, copper tubing, electronic controls of indoor and outdoor units, brushless direct current motors, valves for ACs and LED chip packaging, drivers, engines, light management systems, PCBs including metal clad ones, wire wound inductors etc for LEDs. Hence, by design, the scheme is meant for developing the complete value chain of components. It is estimated that local value addition will increase from about 20-25% to 75-80% in these sectors in 5 years. 

And all these investments are being realized on ground. As against a cumulative threshold of Rs 1,010 crore by March ’23, total Rs 2,002 crore investments have been grounded. All of 15 companies opting for FY22 as the gestation period have commenced production. As against a threshold of Rs 1,316 crore, actual production has been Rs 3,061 crore worth of components as of March, ’23. Most of the first 15 companies are on course to claim their first incentives this fiscal.

We were manufacturing about 1.5 million compressors out of a total domestic production of about 5.5 million AC units in FY20, before PLI. LG has recently inaugurated its compressor plant of 3.2 million capacity. Daikin is in final stages of commencing production of 6 million annually. Midea is on course with its compressor plant of 3.29 million. Similarly, domestic manufacturing of aluminium for about 7 million AC and copper tubing for about 20 million ACs is being created as compared to zero before this scheme. Industry estimates no of ACs produced to be about 15 million by FY28. 

The PLI intervention was also an opportunity for the different layers of industry to come on one common platform. The suppliers of raw materials, suppliers of components and manufacturers of finished goods, both from MNC as well as local brands including the MSME aligned on the requirements of each, leading to demand and supply-side aggregation. 

The real impact of this scheme is in catalysing investments into the respective component value chains. Much more investments, much beyond the commitments in the PLI scheme in both these sectors- ACs and LEDs are being reported. As per industry sources, Amber, for example, committed Rs 400 crore under PLI, it’s actually investing Rs 700 crore. Voltas is investing Rs 1,150 crore against a commitment of Rs 100 crore. Mitsubishi is investing Rs 1,900 crore against a commitment of Rs 100 crore. Daikin has elaborated plans for investing Rs 2,000 crore, against a commitment of Rs 600 crore. 

We are well on course to take local value add from 25% of 5.5 million to about 75% of 15 million by FY28. The industry is also upbeat about the prospects of manufacturing in India for catering to global markets. The roadmap to scale manufacturing of component ecosystem triggered by the sentiment of PLI is making the Indian AC and LED industry globally competitive technologically while also allowing to build the capability to offer a competitive price vis-a-vis other countries. Daikin is on record saying that they aim to triple exports of ‘Made in India’ products by 2025.

  

Anil Agrawal is a former Director General of Police, who served as Additional Secretary in DPIIT, GoI

Manish Sharma is Chair, FICCI Electronics and White Goods Manufacturing Committee