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PLI Scheme To Unlock India’s Manufacturing Capacity: ICRA

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The Government of India with the intention of boosting India’s manufacturing, employment generation, import reduction and exports growth has announced the Production-Linked Incentive scheme (PLI) covering 14 significant sectors of the economy involving a total outlay of Rs. 3 trillion.

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In its latest Sectoral Strategy Report, Icra has analysed the cumulative positive impact of the PLI scheme. It says that the sectors have been strategically selected by the Government, considering India’s surging demand (solar, semiconductors/electronics, automobiles etc.), and are critical to develop manufacturing capabilities (semiconductors, telecom gears, medical devices).

Rohit Ahuja, Head of Research and Outreach, Icra, said, “Manufacturing forms around 20-25 per cent of the total capex in India currently.

The PLI scheme, launched with the aim of incentivising manufacturing, is estimated to attract a capex of approximately Rs 4 lakh crore over the next five years.”

Of the total manufacturing outlay, about 80% is concentrated towards electronics, auto, solar panel manufacturing of which the focus towards semiconductors/ electronics value chain is ~50% of outlay. Incentives are based on incremental production/revenue, spread over five years on an average across sectors. Some schemes are also linked to capital investments.

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The PLI allocation of solar PV modules has been increased to Rs. 240 bn (from Rs. 45 bn). Considering India’s ambitious plans to expand solar generation, this scheme may continue to attract addition allocation every year.

Additionally, the PLI for ACC battery is estimated at Rs. 181 bn with incremental production estimated at 50 GW.

“Globally, India’s manufacturing output as a percentage of GDP is comparable with developed economies like the United States, the European Union and developing economies like Russia and Brazil, however, it is way behind China. Massive opportunity emerging for India, as the world looks to diversify away from China and the PLI scheme is a step in the right direction,” concludes Mr. Ahuja.

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