A PLI boost to Make in India

While a clear picture on the total quantum of investments, across sectors, is yet to emerge, going by the structures and incentives, Credit Suisse’s forecast the PLI could add 1.5-2% to FY27 GDP, doesn’t see out of reach.

With two contract manufacturers for Apple and their vendors having hired some 20,000 workers between them, the `40,000 crore Production Linked Incentive (PLI) scheme for smartphones has got off to a good start. The targeted 25,000 jobs could soon be met once the third manufacturer gets going. That’s encouraging as is the government’s decision to extend the tenure of the scheme to give those who lost out due to the pandemic a chance to earn incentives.

As attractive as it may be on paper, without quick action on the ground to address problems, the initiative could come a cropper. Indeed, as experts point out not every sector has got a good deal so far, and the government should entertain pleas for changes; some even caution, the scheme could run afoul of the WTO on the exports front, but that can be tackled later. For the moment, it is heartening Foxconn and Wistron have surpassed their investment targets for FY21 of Rs 250 crore each though pandemic has left them short of their sales targets of Rs 4,000 crore.

As of now, the government has planned for Rs 2 lakh crore worth of incentives—across13 sectors—of which the auto and auto parts space has bagged the biggest chunk (Rs 57,000 crore). This might not seem like a very large amount, but it is a start. The initiative—an output-based effort—stands a better chance of success since the incentive structure is clearly defined and targeted.

It is based on incremental sales and efficiency metrics including indigenisation levels that are easy to measure, rather than profits or taxes. Revenue incentives kick in immediately and encourage companies to continue to invest. True, only a finite number of companies, in any sector, can use the benefits, but that is enough to get the ecosystem going. Critically, the scheme is backed by a reasonably large resources that do not need to be spent all in one go but over time, thereby giving the government the time to allocate them. Investments made by the manufacturers too can be phased out.

Not every sector may see an enthusiastic response. For instance, there were fewer than expected winners in the bulk drugs and medical devices space. The absence of a strong vendor presence in the country, and cheap imports, made local manufacturing uncompetitive for some sectors. The PLI could make it worthwhile for some—the relatively small RAC (refrigeration and air-conditioning) industry, for instance—a to invest in components.

Among the more promising sectors is ACC batteries for which the PLI envisages an incentive of Rs 18,100 crore, over five years, to attract an investment of Rs 45,000 crore for capacity of 55GWh. The idea is to try and save on imports of Rs 20,000 crore annually. There are bonuses built in—beyond the initial subsidy which is capped at Rs 2,000 /Kwh—going up to Rs 3,600-4,500/kwh.

The conditions are fairly flexible; the technology can be for several applications, no collaborations are needed, the localisation level is a reasonable 60% and there are no restrictions on the end-use or markets. If all goes well, experts believe the cost of cells could be driven down to below $60-70/Kwh. Given India’s thrust on green energy, the government should go the extra mile to sort out any issues that manufacturers may have. While a clear picture on the total quantum of investments, across sectors, is yet to emerge, going by the structures and incentives, Credit Suisse’s forecast the PLI could add 1.5-2% to FY27 GDP, doesn’t see out of reach.