Never in my long career have I been so amazed to see the remarkably enabling environment being provided by policymakers to the Indian industry with a view to enhance manufacturing value-add in the country. Production-Linked Incentive (PLI) schemes are the cornerstone of the government’s efforts to make India a global manufacturing powerhouse — both by augmenting the capabilities of Indian companies and attracting global companies to set up mother plants in India.
As chairperson of the SCALE committee, I have an opportunity to directly interact with industry in many of the PLI sectors and I can confidently say that PLI is making a huge difference and the impact is going to go way beyond the end of the scheme in five years. PLI is giving a kick-start to manufacturing in a way that it will get into a positive spiral.
The government is investing in the long-term growth of our manufacturing sector by providing a strong financial booster shot in the form of the Production Linked Incentive Scheme, as well as doing other reforms. The intent is very clear — to make our manufacturing sector globally competitive and thereby making India Atmanirbhar and take advantage of current geo-political situation. I may also add that we are only in the second year of the five-year PLI scheme. The positive impact of PLI will only accelerate as we move forward.
The foundation
PLI, as envisioned, are built on the foundation of 14 sectors with an incentive outlay of ₹1.97-lakh crore (about $26 billion) to strengthen their production capabilities and help create global champions. The underlying principle is to grow scale and make India globally competitive. The expectation is that in five years the industry will reach a scale and efficiency, helped with other reforms such as Gati Shakti, new trade agreements, EoDB, that it would not need a PLI to be competitive.
Already, we are witnessing a gradual shift in India’s export basket, from traditional commodities to high value-added products such as electronics and telecommunication goods, processed food products etc. PLI Sectors that have seen an increase in FDI inflows in the last year are Drugs and Pharmaceuticals (+46 per cent), Food Processing Industries (+26 per cent) and Medical Appliances (+91 per cent).
In the 14 PLI sectors — mobiles, medical devices, telecom & networking products, automobiles and auto components, pharmaceuticals, drugs, white goods, specialty steel, electronic products, food products, textile products, solar PV modules, advanced chemistry cell battery and drones and drone components, as on date, 733 applications have been approved with expected investment of ₹3.65-lakh crore, of which ₹62,500 crore is already realised till March 2023. Along with the large industries, 176 MSMEs are also among the direct PLI beneficiaries.
Incentive amount of around ₹2,900 crore has been disbursed in FY 2022-23 under PLI Schemes for eight sectors — Large-Scale Electronics Manufacturing (LSEM), IT Hardware, Bulk Drugs, Medical Devices, Pharmaceuticals, Telecom & Networking Products, Food Processing and Drones & Drone Components.
One of the big success stories is that of mobile phones. The PLI Scheme has enabled major smartphone companies — Foxconn, Wistron and Pegatron to shift supplier base to India. As a result, top high-end phones are being manufactured in India.
This has also resulted in increase in localisation in IT Hardware such as Battery & Laptops. India has been able to increase the value addition in mobile manufacturing to almost 20 per cent within a period of three years, which is indeed a very good start compared to its peers.
Apple Inc. is looking to shift part of its iPhone manufacturing value chain to India. PLI Scheme for LSEM along with existing Phased Manufacturing Program (PMP) has led to increased value addition in the electronics sector and in smartphone manufacturing, 23 per cent and 20 per cent respectively, from negligible in 2014-15.
Local value-addition
The PLI scheme for White Goods (Air Conditioners, etc) has been successful in boosting local value addition. The domestic AC industry is working towards increasing the localisation content from 25 per cent to 75 per cent in five years and targeting to acquire a reasonable share of global exports in room air conditioners from a miniscule share currently. There is increased confidence in Indian companies to play in the global arena, thanks to the support from PLI.
Telecom sector has been able to achieve import substitution of 60 per cent with increased self-reliance in Antennae, GPON (Gigabit Passive Optical Network) & CPE (Customer Premises Equipment). Drones which is a strategic sunrise sector has seen significant momentum post PLI, particularly in growing number of promising start-ups in drone manufacturing.
Medical devices is another important sector with high import dependency – to the tune of 75-80 per cent and yet high export potential. India can become the global manufacturing and export hub for medical devices. Thanks to the PLI support, the sector has received committed investment of ₹1,206 crore, with actual investment of ₹714 crore till date.
Wipro and GE, Siemens are increasing manufacturing footprint in India. It is very encouraging to see that domestic manufacturing of high-end medical devices like, MRI Scan, CT-Scan, Mammogram, high end X-ray tubes, etc is starting in India.
A word of caution for the industry. The PLI scheme is for five years. It is critical that these five years are used by the industry to create scale and with the government’s help to reduce factor and logistics costs. By the sixth year we must ensure that the Indian manufacturing is globally competitive even without the help of the PLI scheme.
The writer is Chairperson of INSPACe and former Managing Director of Mahindra and Mahindra