INFineeti Budget Edition 2021 by InFINeeti- The Business & Finance Magazine of IIFT

INDIAN INSTITUTE OF FOREIGN TRADE

Technological Advancements or Traditional Methods for India Inc. Which shall claim victory?

In This Issue: Impact of incentives on manufacturing

Stepping Stones for Cryptocurrency

FROM THE EDITORS DESK

Dear Readers, Welcome to yet another edition of InfiNeeti! In this edition, we have tried to cover topics ranging from the Impact of Production Linked Incentive Scheme on the Manufacturing Sector to the risk return trade-off of cryptocurrencies. The PLI scheme acknowledges the relevance of exports in overall growth strategy and promote manufacturing at home by offering production incentives and encourage investments both from within and outside. On the other hand, crypto currencies have gained traction in the post COVID era given that the transactions are fast, digital, secure and worldwide. It was humbling to receive so many responses from students from all walks of life. Each article contributed more to our understanding of the topics and provided us with enriching insights. We hope they enlighten you the readers too. Happy reading! A collaboration of Capital, the Finance and Investments Club and Equity Research Cell; the Finance Society delivers the complex finance in an easy to understand way. The society provides a platform to discuss and present to its readers, the recent happenings in the world of finance. Finance Society hosts intracollege & inter-college competitions in the field of investment banking and equity research, which gives the students an opportunity to test their financial acumen and prepares them for compels problems faced in the real world.

Foreword

Dear Readers, I am happy to present to you the March Edition of the bi-annual finance magazine INFineeti 2021. This edition has been brought to you at a very important time when technology has begun to play a pivotal role in financial developments across the globe.

Dr. K Rangarajan Center Head IIFT Kolkata

Prof. K. Rangarajan is an Accredited Management Teacher (AMT conferred by AIMA) and is a member of several professional bodies including AIMM (Australia). He is also amongst the Board Of Directors of The State Trading Corporation of India Limited (STC). His expertise includes Business Strategy and Strategic Planning.

To eye a progressive India, we find ourselves in a dire need of addressing the looming issues faced by the manufacturing sector in India coupled with the impact of the Bahi-Khata (Budget 2021) on the same. While there is a fresh opportunity for new startups to grow into unicorns, there are ample opportunities for the Government to localize and understand the need for liquidation of its assets and play safe bets on its investments. In this year's issue, we have focused on how cryptocurrency has revolutionized the financial sector forcing major Governments to accept its legality.

Each edition of this magazine has helped raise the bar even higher and has been of great service to the student fraternity and has helped bring diverse viewpoints to the fore This edition of InFINeeti is trying to analyze some of these questions and provide interesting insights

We hope you enjoy reading this edition. Wishing all students a glorious year ahead!

Aastha Bhatt CFA candidate and an avid finance, literature and music enthusiast! A Charlotte Brontë fan

Ekta Bihani Ambivert. Purposeful. Live for the moments you can't put into words

Pranay Agarwala

MEET THE TEAM

CFA Level III cleared, a finance enthusiast who loves to trek and explore cultures and food!

Abhishek Aggarwal DC/Marvel fanatic, cricket enthusiast, runner and a movie buff with a penchant for traveling and trekking

Neelay Kamath Sports buff and a stock market enthusiast who enjoys the thrill of playing poker and chess

Nipun Vij Love playing cricket and reading books. Stock market buff and Formula 1 enthusiast

INDEX

Impact of incentives on manufacturing Pankaj Yadav

Rajat Shah, IIFT

Chetan Singh, IIFT

Amrit Mohapatra, JNU

Sourav Motiramani

Yash Bhatt

Nitesh Singh, IIFT

Stepping Stones for Cryptocurrency Nikhil Singh Gangwar, IIFT Aritra Banerjee, NMIMS

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Stepping Stones for Cryptocurrency RISK- RETURN TRADE OFF BY NIKHIL SINGH GANGWAR, IIFT One of the most sweltering innovations in the world of finance has been the creation and evolvement of cryptocurrencies. These digital innovations have been the epicenter of extensive news coverage, especially the Bitcoin: frontrunner, determined to provide an alternative to investors that involves tremendously high risk and return. The cryptocurrency phenomenon unconventional sources of risk

and

Measures of crypto returns have been a high multiple of conventional currency, equity and commodity investments and the pattern has been very robust relative to the time frame. The financial press addresses new vocabulary such as block chain, hash, proof-of-nodes and the role of distributed cryptographic proof replacing the need for trust (the distributed ledger and transaction verification), privacy (anonymity), and the potential haven for transfers of illegally obtained funds. The potential returns are comparatively much bigger than those of more conventional investments. Traditional Approach Return analysis with respect to other asset classes

"Crypto returns can be predicted by factors which are specific to cryptocurrency markets."

It has been proven, via standard tools of empirical asset pricing by mathematically constructing cryptocurrency momentum, proxies for average and negative investor attention, a proxy for price-to-dividend ratio, realized volatility, and proxies for the supply conditions. Time-series crypto momentum, for example, a one-standard-deviation increase in the current day’s Bitcoin return predicts a 0.33 percent increase in the daily return over the next day. Proxies for investor attention, show that high investor attention predicts high future returns over 1–2-week horizons for Bitcoin, a 1-week horizon for Ripple, and 1-, 3-, and 6-week horizons for Ethereum.

Cryptocurrencies return predictors: Exposure of cryptocurrency returns to currencies as a medium of exchange and precious metal commodities as a store of value and to macroeconomic factors has been not statistically significant

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Designing

A one-standard-deviation increase in the Google search for the word “Bitcoin” yields a 2.3 percent increase in the 2-week ahead Bitcoin returns Twitter post counts, a one-standard-deviation increase in the Twitter post count for the word “Bitcoin” yields a 2.50 percent increase in the 1week ahead Bitcoin return A ratio between Google searches for the phrase “Bitcoin hack” and searches for the word “Bitcoin, show that a one-standarddeviation increase of the ratio leads to a 2.75 percent decrease in Bitcoin returns the following week Proxies for the cost of mining to capture the supply factors, some evidence exist that Ethereum returns are exposed to the stock

returns of Advanced Micro Devices, Inc. (AMD), one of the main manufacturers of specialized mining hardware, but not significant in Bitcoin and Ripple. Proxies to exposures of various industries to cryptocurrencies. These results indicate which industries may benefit or may be disrupted by the blockchain technology Thus, it could be concluded, that cryptocurrency represents an asset class that can be assessed using simple finance tools and but it also comprises an asset class which is radically different from traditional asset classes.

Risk Exposures

Cryptocurrency specific factors:

Stock Factors - Bitcoin returns comove more with high profit rather than low profit firms. Currency: Systematic currency exposures of Bitcoin returns over the shorter periods are small and statistically insignificant as the alpha estimates barely change. Precious metal commodities: Exposures of all other cryptocurrencies to these commodities are not statistically significant, the alphas of Bitcoin and Ripple decrease, when gold and platinum are considered with the exception of Ethereum. Macroeconomic : Some significant loading against non-durable consumption growth, durable consumption growth, industrial production growth, and personal income growth

Time-series momentum is estimated by grouping weekly returns into quintiles and evaluating their performance going forward. The momentum effect is statistically significant for all the crypto currencies namely, Bitcoin, Ripple and Ethereum.

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Cryptocurrency Investor Attention: Ratio is constructed to analyze the deviation of Google searches for the words Bitcoin, Ripple, and Ethereum is constructed in a given week compared to the average of those in the preceding four weeks and strong interdependence is observed

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Crypto Price-to-Dividend Volatility

and

Crypto

Obviously, there is no direct measure of dividend for the cryptocurrencies. However, in its essence, the price-to-dividend ratio is a measure of the gap between the market value and the fundamental value of an asset. The market value of cryptocurrency stands to be the observed price. The fundamental value is proxied by using the number of Bitcoin Wallet users. Overall, there is very weak relation between the future Bitcoin returns and the current price-to-dividend ratio and similar results align to volatility. For Ripple and Ethereum, the data on the number of users is not immediately available.

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The value weighted stock returns of the U.S listed electricity industries The value-weighted stock returns of the China-listed electricity industries The SINOPEC(SNP) stock returns (China is considered to have the largest coin mining operation among all countries). For proxies of computer power, stock returns of the companies that are major manufacturers of either GPU mining chips (Nvidia, Inc) or ASIC mining chips (TSMC Inc) are considered. Findings explain that supply factors such as mining costs, price-to-dividend ratio, or realized volatility are useful for predicting the behavior of crypto currency returns.

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By Pankaj Yadav

The blockchain technology embodied in cryptocurrencies has a potential to affect a number of important industries. Cryptocurrency investors are more likely to trade penny-stocks and stocks featured in pump and dump schemes and also more likely to participate in other investment vehicles with high idiosyncratic risk, such as emerging market, biotech, and solar-related ETFs.

Comparing the portfolio return profiles of cryptocurrency and non-cryptocurrency investors, we show that crypto currency investors have higher portfolio betas but lower portfolio efficiency, as measured by relative Sharpe ratio losses (Calvet et al., 2007). While the previous literature suggests that cryptocurrency can be used as a diversification instrument (Bouri et al., 2017), the cryptocurrency investors in our sample might underperform due to investment biases. Despite their speculative nature, there is evidence that cryptocurrencies have positive portfolio returns, at least over their short period of existence.

It remains ambiguous whether cryptocurrency investors are also more likely to be blue-collar workers and less educated or whether they attract a higher wealth clientele. In addition, we presume that cryptocurrency investors have more trading experience, trade more frequently, especially in assets with high idiosyncratic risk and skewed return profiles and have riskier portfolios than the average individual investor.

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What is DeFi?

DeFi draws inspiration from blockchain, which allows several entities to hold a copy of a history of transactions. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases. Eliminating the middlemen from all kinds of transactions is one of the primary advantages of DeFi. Popular types: Decentralized exchanges (DEXs), Stable coins, Wrapped bitcoins (WBTC), Yield farming, Liquidity mining, Composability, Money Legos.

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Crypto-returns to efficient frontier of emerging markets

The empirical analysis implies that Bitcoin improves the effectiveness of the portfolio in emerging markets of the selected EU countries. The best combination of risk and return are offered by Tangency portfolio offers it has the highest Sharpe ratio. Bitcoin would increase portfolio efficiency even more.

By Pankaj Yadav

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Writer's Opinion

From a consumer financial protection and normative point of view, it is imperative to understand these uptake patterns and shed light in coming years on how new technologies and investment strategies are adopted by different types of consumers over time such that researchers, policymakers, and financial institutions can accurately measure the associated welfare gains or losses been recorded that cryptocurrency investors have higher portfolio betas and experience higher relative Sharpe ratio losses. This finding might be partly driven by investment biases since their portfolio choice is to a larger extent driven by behavioral biases, such as trend chasing and lottery-stock preference.

Some of the points that can be concluded from the synopsis are:

CURRENT STEPPINGSTONES: WORLD BEING BUILT

NEW

New trends have been surfacing up

By Pankaj Yadav combining digital assets with traditional With a focus on financial protection and vulnerability in terms of participation in initial coin offerings (ICOs) and the unexplored link between cryptocurrency and crime is the call of the coming decade. This focus is important since the regulation regimes differ widely across jurisdictions

banking services managing an array of digital assets and fiat holdings in one simple-to-use platform. Recent example of being Deustche bank preparing a trading and token issuance platform.

Products must be classified along several risk classes, allowing for geographical (EU, ASIAN, US…) product comparison and ensuring that only customers with a measured risk preference are eligible to buy those structured products

Further queued by the likes Bank of New York Mellon and MasterCard announced plans for storing bitcoin and other cryptocurrencies for its clients. Services if not tokens are being sought to be integrated into business opportunities. Blockchain seems like it has some sort of potential to offer a different economic logic that structures society, and so a lot of artists are interested in decentralization and the buzz around digital money.

Low correlation to other assets and resistance to economic shocks are just some of the reasons why investors want to include them in their portfolio

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Impact of Production Linked Incentive Scheme on the manufacturing sector By Pankaj Yadav India is fifth largest global economy in nominal terms and third largest in purchasing power parity. However, our manufacturing sector has long performed below its potential. For a developing nation like India we should have transitioned from agriculture economy to manufacturing economy but we moved to a service economy. This has led to massive unemployment challenges in our country. It is significantly hampering growth of our nation because even after having the largest demographic dividend, we have high rates of underemployment, with 90% of our jobs in the informal sector. Even after renewed efforts by different governments, manufacturing sector contribution to GDP has been stagnant at 16% since 1990.

In contrast, manufacturing contributes about 40% to Chinese GDP and it has emerged as a global hub for manufacturing. Even after the ongoing trade war between US-China, India failed to capture the manufacturing sector that moved out of China. Instead, it was captured by smaller countries like Vietnam and Bangladesh. To corroborate it further, in the decade preceding 2019, Vietnam’s merchandise export grew at an annualised average rate of 18% as against only 5% for India. The reasons for India’s poor performance are inadequate infrastructure, inefficient supply chain and logistics, high cost of finance, erratic power supply, limited innovation capabilities and lack of skilled workforce.

These inadequacies result in an additional cost of 9% to 11% for the companies thereby acting as a big disincentive even after India being a large market. Hence the government decided to come up with the Production Linked Incentive (PLI) Scheme to make India a more favourable manufacturing destination for companies across the world.

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What is the Production Linked Incentive (PLI) Scheme?

Taking inspiration from National Policy on Electronics 2019, which aims to make India a global hub for Electronics System Design and Manufacturing (ESDM), the Ministry of Electronics and Information Technology (MeitY) announced a PLI scheme for large scale electronics manufacturing on April 01, 2020. Its objective is to boost domestic manufacturing and bring large investments in mobile phone and other electronic components manufacturing, including assembly, testing, marketing and packaging (ATMP) units.

The scheme will provide 4% to 6% incentive on the incremental sales above the base year for a period of five years subsequent to base year 2019-20. The total incentive over the five year term was pegged at Rs 40,950 crores. It seeks to make domestic manufacturing competitive and efficient, create economies of scale, make India part of the global supply chain, attract investment in core manufacturing and cutting edge technologies and in turn lift up exports.

Impact of PLI on manufacturing sector By Pankaj Yadav

This scheme was a big success in its first year of launch with a total of 22 companies registered under this scheme. These included global companies like Samsung, Foxconn, Pegatron and Winstron as well as domestic companies like Lava, Bhagwati (Micromax) and Padget electronics. The project received commitments of electronics manufacturing worth Rs 11.5 lakh crore.

Seeing a big success of the PLI scheme in the electronics sector, the central government announced extension of the scheme to pharmaceutical ingredients and medical devices in July 2020 and later 10 more sectors including food processing and IT hardware with an estimated outlay of Rs 1.46 lakh crore over next five years.

To continue the PLI scheme this year as well, a financial outlay of Rs 2 lakh crore was provided in budget 2021-22 for the 13 sectors under the ambit of this scheme.

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Writer's Opinion

The Government of India should work towards a holistic environment to boost the manufacturing sector. Otherwise, as in earlier schemes like Make in India, we will not be able to attract any significant investment into the manufacturing sector. The PLI is a short-term measure and will be largely used by companies already having a base in India. To attract new businesses, we need to make the overall ecosystem more business friendly and financially competitive to our peer nations. We have a significant advantage of demographic dividend but lack skilled labor, e.g.,less than 5% of India’s labor force is skilled as against 96% in South Korea or 25% in China. Likewise, the infrastructure is largely inadequate in our country to support large businesses. We are also absent from global value chains. On top of this, we are not part of any major multilateral grouping and further avoided being part of RCEP, this reduces the attractiveness of India as an investment destination. In conclusion, we can say that the government has taken a very pragmatic initiative in form of PLI which will certainly incentivise companies to expand their production base in India. Even within a year of its implementation in the electronics sector, we have seen many positive developments in terms of increased investments in expanding manufacturing bases in India. Thereafter, the government has extended it to thirteen sectors and with an allocation of Rs 2 lakh crore. Thus, PLI is an effective short-term strategy to incentivise existing businesses to invest more in India. But to make India the next global centre for manufacturing, we need to make the overall ecosystem competitive. We need to rise to be the best in Ease of Doing Business and improve on all aspects of making India a favourable manufacturing destination. We need to reduce tariffs and other barriers on trade and be a part of more multilateral free trade agreements to incentivise global businesses to set up bases in India. Thereby India can truly become the factory of the world.

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Impact of Production Linked Incentive Scheme on the manufacturing sector "PLI will encourage global leaders to create capacities in India, boosting FDI and creating jobs for the youth"

By Rajat Shah , IIFT Under its Atma Nirbhar Bharat resolution, the Union Cabinet approved a productionlinked incentive scheme for "ten primary sectors" to improve India's manufacturing capabilities and exports in April 2020. This scheme has been allocated Rs 1.45 lakh crore, with cars and auto parts receiving the largest share, followed by advanced chemistry cell batteries, pharmaceuticals, and medicines. Then there are telecom and networking goods, textiles, and food. The list is completed by white goods, specialty steel, and high-efficiency solar PV modules. The salient elements of the direction seem to include the following: Protect identified product areas through higher tariffs Assiduously work towards introducing non-tariff measures to make imports difficult Acknowledge the relevance of exports in the overall growth strategy but focus more on the domestic market Promote manufacturing at home by offering production incentives and encourage investment The scheme aims to render Indian manufacturers ‘globally competitive, attract investment in core competencies and cutting-edge technology, ensure efficiencies, build economies of scale, boost exports, and make India an integral part of the global supply chain.'

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When taken together, this resolution, along with the three production-linked incentive schemes announced earlier for mobile handsets, active pharmaceutical ingredients, and main starting materials, and medical devices demonstrate the government's desire to promote manufacturing in the country following the failure of the "Make in India" initiative. The sectors for PLI have been shortlisted based on their potential for economic growth, revenue, and employment generation. The extent of benefit to the rural economy and its criticality in the next few decades has also been considered while finalizing the sectors. Extremely strong manufacturing skills are also needed to compete with Asian competitors who have made staggering progress in one or more of these areas. It will also help India's rural development by ensuring constant electricity and digital connectivity. Import substitution, export promotion, costcompetitive

and

productive

production,

economies of scale, increased contribution to global value chains, and increased market share are all goals of the PLI scheme. Furthermore, it will encourage global leaders to create capacities in India, boosting FDI and creating jobs for the youth.

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The scheme is supposed to produce better results because it is output-oriented and has "milestone-based incentivization," as opposed to previous schemes that were more dependent on multiple input parameters. It would draw large sector players, advanced technology, and grow an interconnected ecosystem with production efficiency and economies of scale because of its output-oriented existence.

According to the NITI Aayog, the , country's Rajat Shah IIFT minimum output as a result of the PLI schemes will be about INR 3.92 lakh crore in the next five years. From 2021 to 2022, the scheme can generate nearly 1.40 crore manmonths of jobs, essentially doubling the current workforce across industries. This will help our country's MSME sector develop even further.

Economic Survey 2021 Report

Result of PLI on other countries

According to the survey, the PLI scheme would increase efficiencies, build economies of scale, boost exports, create a favorable manufacturing environment, and make India an integral part of the global supply chain, especially in the ten sectors targeted by the scheme.

China, Vietnam, Korea, and other manufacturing economies competing with India had good trade-oriented industrial policies. They were paired with lower-wage jobs, labor law stability, lower enforcement, a great ecosystem, and tax and duty relief to encourage export. Factors such as complicated and time-consuming compliances, land and power availability, high capital costs, a shortage of qualified labor, a lack of emphasis on R&D, and a fragmented supply chain with heavy reliance on imports can all be blamed for India's stagnant manufacturing.

The government has set aside the largest amount of incentive for the vehicle and part industry, totaling 57,042 crores, under the scheme. A total of Rs. 40,951 crores had been allocated to the mobile sector as a tax break. Advance cell chemistry batteries (Rs 18,100 crore), computer and technology products (Rs 5,000 crore), prescription drugs (Rs 15,000 crore), and telecom and network products (Rs 12,195 crore) are some of the other sectors covered by PLI. Textile products (worth Rs. 10,683 crores), food products (worth Rs. 10,900 crores), highperformance solar PV modules (worth Rs. 4,500 crores), white goods (worth Rs. 6,238 crores), and specialty steel (worth Rs. 6,322 crores) are also covered by the scheme. The scheme's initiator, the Ministry of Electronics and Information Technology, has accepted 16 proposals from domestic and foreign companies totaling Rs 11,000 crore in investment to produce cell phones worth Rs 10.5 lakh crore over the next five years.

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Apart from Samsung and Rising Star, the scheme's applicants include iPhone maker Apple's contract manufacturers Foxconn Hon Hai, Wistron, and Pegatron, as well as Apple's contract manufacturers Foxconn Hon Hai, Wistron, and Pegatron. Lava, Bhagwati (Micromax), Padget Electronics (Dixon Technologies), UTL Neolyncs, and Optiemus are among the domestic companies whose proposals have been accepted.

The mobile phone sector is expected to generate over 2 lakh direct jobs and nearly 6 lakh indirect employment opportunities in the next five years.

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Writer's Opinion

Though India is establishing itself as an investment destination, other countries are becoming more appealing and establishing themselves in response to shifting paradigms. In the current situation, the PLI scheme would offer a significant boost to global companies seeking to establish facilities outside of China. This scheme would need to be properly assisted by an integrated solution that takes into account the entire manufacturing ecosystem. The greater challenge will be ensuring that investors who come to India under this scheme can successfully set up their businesses, with minimal delays and capital cost overruns. This will ensure that the scheme is implemented and run efficiently. This will ensure effective scheme implementation and business sustainability in the long run.

Some additional steps are essential to further power the ambition of USD5 trillion economy. They include the actual realization of ease of doing business, strong skilled resources base, simplification of labor laws, promotion of R&D initiatives, and check on the import duty of some of the key products in the initial years so as not to disrupt the current supply chains. The government should incentivize large players to set up research and innovation infrastructure in all these sectors to compete with global leaders. In the current environment, such a strategy and an emphasis on export-oriented initiatives could seem improbable. However, as the global trade situation improves, India will be wellpositioned to reap the benefits of these industrialization initiatives in terms of large businesses, increased productivity, technological advancements, and job opportunities.

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Impact of Production Linked Incentive Scheme on the Manufacturing Sector By Chetan Singh, IIFT Production-Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on sale of products manufactured in domestic units i.e., manufactured in India itself. Launched in April 2020, the scheme was initially launched in correspondence to National Electronics Policy with the aim to boost manufacturing of electronic items like mobiles, laptops, semiconductor chips and related accessories related to Electronic Products Industry. The scheme was launched to reduce the import bills, dependency on countries like China and boost domestic manufacturing sector in compliance with Atmanirbhar Bharat policy to generate employment, self-reliance and overall, the Indian Economy. As of March 2021, the PLI scheme has been expanded to medical instruments, pharmaceutical, chemical, telecom, food processing and automobile sectors. The Government holds the vision to make India a 5 Trillion Dollar economy in next 4-5 years. The growth lessons learnt from China during Post-Mao period can be easily interpreted that it was the manufacturing sector boost of China in 1980s to the start of 21st century which helped it to become the Economic Powerhouse it is today. Looking further back into the history, rise of Europe and US can be primarily attributed to their respective Manufacturing Sectors. The absence of policy and long term vision for domestic manufacturing sector post independence is the primary reason that despite home to the largest youth population and enough skilled labour, meagre 17% contribution is their of Manufacturing sector to Indian GDP as compare to 40% in China. Government expects PLI scheme to boost India’s manufacturing by $520 billion in next 5 years. As

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“Make in India, make for the World” -PM Modi on PLI Scheme

in every sector major firms needs supplies from different vendor companies, PLI scheme will act as a support base for these MSME industries by helping them establish entire value chain. PLI scheme will also enhance the FDI flow into the covered sectors and will drive research and innovation along with manufacturing. In order to be eligible for PLI scheme, an applicant must commit to investing Rs. 10 cr (MSME) / Rs. 100 cr. ( others) to Rs. 1000 cr. for considered years. MSME sector holds share of 28.77% of country GDP (2016) whereas the contribution of manufacturing MSMEs stands at 33% in country’s total manufacturing Gross Value of Output (GVO) (2016). Also, almost 60% of MSMEs are operational in rural areas. Hence, through this scheme, government can ensure targeted development of rural economy and the investments will directly into the specific regions and belts. Manufacturing MSMEs contribute of 33% of employment across also MSME industries. The sectors covered under the scheme includes telecom, electronics, chemical, automobile. The following the import cost of these sectors and their proportion of total

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imports: Electronics – $44.1 Billion (9.2%) Heavy Machinery – $50.4 Billion (10.5%) Chemicals including fertilizers – $27.8 Billion (5.8%) Medical Apparatus – 9.5 Billion $ (2%) Apart from fuels and precious metal (50%), it is clear that abovementioned sectors are the ones contributing to import bills and this can be reduced. Also it is worth noting that above sectors are projected to at a CAGR of double digits in next 4-5 years annually – Electronics - 15-19% Machinery – 10% Chemicals – 12-15% Medical Devices – 15-20% India like China is home to a big domestic market for these sectors being top 20 global market and is projected to become top 5 global market at current growth rate. Hence, in order to ensure that the benefits of large consumption market in the form of inflow of huge investments gets distributed to Indian economy and public in general, PLI scheme is well suited. Changing geopolitical landscapes with respect to economic powerhouse, growing tensions between US- China, onset of pandemic and rise of protectionism among economies has given further push to PLI scheme. With the future in mind and focus on sustainability, climate change and new technology like EV, Renewable sources of energy, sustainable healthcare and transport system and digital technology adaptation, it is important that Indian economy is already in position to cater to sudden shift in global as well as domestic demand.

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Pandemic has resulted in contraction of various sectors. Indian economy expected to be contracted by 7-8% this fiscal and grow by 11 per cent in next fiscal year. This growth is not possible until the capital expenditure is not undertaken in industrial sector. As government has earmarked Rs. 2 lakh crore for PLI scheme in this year, the private sector and foreign investment combined will only be able to help recover the reeling economy. PLI scheme has the potential to give access to domestic companies to latest technology and opportunity to become global champion of global supply chains and integrate MSME sector also. The other two parameters which PLI targets is making India export hub and generate skilled employment opportunities. Government expects generation of 7 million employment opportunity and expects exports to the tune of Rs. 13 trillion from targeted sectors. PLI scheme needs to be expanded to hospitality and aviation sectors also as these are the worst sectors to be hit due to lockdowns and travel restriction as well as recovery is also the slowest in these sectors till now. As pointed out by NITI Aayog CEO, Amitabh Kant PLI scheme will repeal fruits in long term only and with the passage of time the scheme should be expanded to other sectors also. It is widely pointed out that PLI is a import substitution scheme and not the one that encourages export. The access to basic resources holds the key to manufacturing of basic components in all these sectors. China holds the advantage here, even today accounts for largest mines and reserves for precious

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metals like iron, semiconductors.

lithium

and

various

Despite world blaming China for pandemic, China recorded highest ever exports figure in decades to 2 Trillion Dollars. This shows the economic influence it has on the world. China became the largest trade partner of European Union and India overtaking US in 2020. Hence, there is need for extra incentives to push domestic products to global trade market even after PLI scheme. The government should also be ready to face adverse conditions as already fiscal deficit is expected to be 9.5% this year. Indian economy cannot afford another slowdown in near future else the fruits of PLI scheme cannot be enjoyed. The PLI scheme should also include agriculture sector and rural India as the real potential is still trapped in countryside. Apart from PLI, the ease of doing should be the focus of government. Reforms in farm laws, land laws and labor laws will boost industry sentiments. The implementation also holds the key with smooth co-ordination of state governments. Hence, it can be concluded that PLI scheme is need of the hour and couldn’t have been introduced at a better time when the world is looking toward India for the opportunities of future.

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Impact of Production Linked Incentive Scheme on the Manufacturing Sector Manufacturing Sector- Overview

By Amrit Mohapatra, ABVSME, JNU The Hon’ble Finance Minister Ms. Nirmala Sitharaman, in her budget speech on 1st February 2020, announced the allocation of ₹ 1.97 lakh crores for the Aatmanirbhar BharatProduction Linked Incentive Scheme over a 5year period. To get the full picture of this announcement, we must look at the macroeconomic scenario with a historical analysis and the potential the manufacturing sector holds for future performance.

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The manufacturing sector contributes around 14.5% to the total Gross Value Added (Figure I). The contribution of manufacturing to total GVA has been declining in the past few years, as its rate of growth is less as compared to services and agriculture. In the past few years, the services sector saw tremendous growth in augmenting India to become a major leader of IT services exports. However, the direct transition of India from an agriculture-based economy to a services-based economy somehow neglected the growth of industry and manufacturing. The lack of entrepreneurship mindset, difficult business environment in India, complexity in regulatory process and anti-capitalism politics played a key role in suppressing the growth of the manufacturing sector. The problems due to overdependence on the services sector saw greater visibility after the outbreak of COVID-19.

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In terms of sectoral growth analysis, the services sector had been performing extremely well before the outbreak of COVID19 and was responsible for driving the economy forward.

Although the pandemic disrupted the economy to a large extent, the agricultural sector somewhat arrested the contraction (Figure II), as it maintained a growth rate of 3.4% vis a vis contraction of economy by 7.2%.

Figure II: Sectoral Growth Rate Trends (2017-18 to 2020-21)

Source: Economic Survey 2021

Decomposing the industrial sector, we see that the manufacturing sector’s performance has been average, with construction and electricity contributing more to the industry’s share to

GVA (Figure III). In 2019, manufacturing saw a growth of 5.7% while electricity and construction grew by 8.2% and 6.1% respectively but mining contracted by 5.8%.

Figure III: Rate of Growth of GVA in Industry and Its Components (%)

Source: Economic Survey 2021

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Figure IV: Rate of Growth of Export and Imports of India vis a vis World, Advanced Economies, EMDEs and SE Asia (2016-2020 Q3)

Source: Economic Survey 2021

The correlation between India’s exports and imports vis a vis world has remained positive. Prior to 2020, imports saw greater volatility vis a vis rest of the world while India’s export performance remained fairly stable. The decline in exports as well as imports during the pandemic period was much more profound in comparison with the rest of the world (Figure IV).

Lack of domestic manufacturing of products, the disruption of global supply chains due to stringent lockdowns and geopolitical factors played major roles in dampening India’s trade activity. This highlighted the urgent requirement to facilitate domestic production and come up with a performance-based incentive scheme that spurs economic revival and pushes economy to respectable levels of growth again.

Salient Features of the PLI Scheme The PLI scheme is based on four fundamentals to ensure transmission of policy to effective action. Performance Oriented Approach: The producers shall be able to avail benefits of the incentives only after they have achieved production in the country. Benefits on incremental production: As the firms will grow by taking advantage of economies of scale, the amount of incentives received on an incremental basis will be proportional to the marginal increase production. Another rider to this is that the growth rate should be high.

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It is expected that to achieve this rate of growth, firms should either invest more in green-field assets or expand their existing facilities. Emphasis on Scalability: The scheme selects players who can produce and deliver products in large volumes. Focus on Integration: The PLI scheme also aims to select the sectors that can be integrated with global value chains, rural economy, as well as the job creating sectors. Technology is also expected to play a key role in this integration and its promotion is encouraged.

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The production linked incentive scheme so far has been announced for 13 sectors (See Figure V). It is worth mentioning here that mobile manufacturing & specified electronic

components, as well as the automotive industry received the largest share of the PLI scheme allocation, suggesting the government’s priorities for the next five years.

Figure V: Production Linked Incentive Scheme: Decomposition of the Total Outlay (₹ Crores)

Source: PIB

In order to understand the potential effects of the scheme, we need to study each segment separately: ACC battery manufacturing: It holds the potential to boost consumer electronics, electric vehicles and renewable energy. The growth of ACC battery manufacturing through domestic and international players will help in innovation and technology transfer through competition. Electronic Products: The Government of India is promoting Digital India and Smart Cities. Innovation and domestic production of electronic products is necessary to create smart citizens for the future. Accordingly, this will also help create deep-tech based products, e.g. Internet of Things (IoT). Additionally, deep-tech start-ups will also get support to link demand with supply.

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Automobiles: The scheme will facilitate the Indian Automotive Industry to become more globalized with enhanced competition. Some of the focus is also expected to be on manufacturing vehicles with less carbon footprint, designing and manufacturing electric vehicles (two-wheelers, four wheelers) and their ancillaries. Pharmaceuticals: India plays a major role in the global pharmaceutical sector by contributing 3.5% to the total share of drugs and medicine exports. PLI will not only help pharmaceuticals grow, but also enable the growth of the Chemical Industry.

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Telecom: The PLI scheme will enable India to take a major leap towards becoming a major original equipment of telecom and networking products. Combined with deeptech and consumer electronics, it will accelerate the process of digitization. Textiles: Although India enjoys global leadership in the textile industry with a global export share of 5%, it still lags behind in the manmade fibre segment (MMF). PLI scheme can help address this bottleneck and enable development of smart tools to aid textile manufacturers. Here, the focus would be more on quality. Food Processing: This industry is one of the key players in the global value chain of agricultural produce that serves as the penultimate point of contact for consumers. The scheme is expected to improve operational efficiencies, international marketing and generate employment. This can also enable farmers to receive a better price for their produce, subject to other factors. Solar Energy: India’s import dependence on Solar PV panels can expose it to foreign exchange risk and security challenges, the latter because these panels are hackable due to their electronic value chain. The PLI scheme can boost domestic production of solar PV panels, reduce import dependence and also create huge export value. Additionally, it will also offer cheaper options for MSMEs who look for solar rooftop adoption.

White Goods: Air Conditioners and LEDs have a high domestic as well as export value potential. Domestic manufacturing of white goods (ACs and LEDs) will enable access of these products at lower prices. Greater domestic manufacturing and increased exports will also augment more jobs. Mobile Manufacturing and Specified Electronic Components: This sector has been given much emphasis due to the problems plaguing it and the potential it holds. Some of these problems include inadequate infrastructure, fragmented domestic supply chain and logistics, high cost of capital, lack of quality power, limited design capabilities and little R&D expenditure by the industry. This scheme will enable India to develop core competency in mobile manufacturing and enable a competitive environment. Drug Manufacturing and API: The growth of the latter is very essential to reduce the dependence of Active Pharmaceutical Ingredients (APIs) imports from China. India is already a major player in exporting generics to the world and through the scheme of PLI, It can also venture into specialized medicines generation. Medical Devices: The setting up of medical devices plants will play a key role in generating self-sufficiency in producing specified medical devices.

Steel Industry: India is the 2nd largest steel producer in the world and is a net exporter of steel products. The PLI scheme can enable India to focus on manufacturing and exporting improved grades of steel and create an even more robust steel sector.

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Writer's Opinion

In my opinion, the Aatmanirbhar Bharat Production Linked Incentive Scheme covers the key driving sectors, as well as the sectors showing growth potential. I wouldn’t be surprised if railways, transportation and toys manufacturing see inclusion in this list in the future, as they have high potential for growth and employment generation. In order to ensure sustained growth, it becomes essential to provide relief to companies through monetary policies. Here, there could be some friction due to the rising NPA issues in the past which can deter banks from extending credit, which can deter smaller players from participating. However, with appropriate government backing, firms should be able to manage their working capital and financial metrics well. Through the PLI scheme, both forward and backward integration can be facilitated. This will help in linking to the MSME sector and the global supply chains. In terms of foreign investment, many capital-rich global firms are willing to set-up facilities in India. Competition with foreign companies will push domestic firms to innovate and spend a greater portion of their revenues into research and development.

The cumulative impact of these developments will

ultimately make India “Aatmanirbhar” to a good extent and lead to job creation as well as export promotion, thereby improving its balance of payments.

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Risk-Return Trade-off – Stepping Stones for Cryptocurrencies

By Aritra Banerjee MBA Core, NMIMS Mumbai For decades, government-issued currencies, or fiat money as they are popularly known, have been the cornerstones of economies around the world. Fiat money has no intrinsic value of its own and is valuable only because the government backing it pledges

transacting

maintain parties

its

agree

value on

its

and/or value.

the Most

currencies, including the US Dollar and the Indian

"Cryptocurrencies offer unprecedented opportunities but due to its riskiness the blockchain-based asset has still got a long way to go before being universally accepted and realizing its true potential."

National Rupee, are fiat currencies and therefore, almost all the transactions around the world are conducted using fiat money. However, a little over a decade ago on 12th January 2009, the world of finance witnessed a landmark event that challenged this status quo. It was on this day that the creator of Bitcoin, using the name Satoshi Nakamoto, sent 10 Bitcoins to cryptographer Hal Finney and thereby recorded such a transaction for the first time ever in human history.

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Since that historic day in 2009, Bitcoin,

In just 7 years, the market capitalization of

one of the best-known cryptocurrencies,

cryptocurrencies

has been used in millions of transactions

7038.04% from $10.62 billion in 2013 to

across the world and has experienced a

$758.06

stupendous rise in stature. Today some

expansion means that cryptocurrencies are

experts

the

no longer small enough to be ignored. In

potential to replace the U.S. dollar as the

fact, such is the potential that how the

world’s reserve currency in the future. In

world of finance shapes up in this new

more ways than one, the growth story of

decade would be greatly dependent on the

Bitcoin has been a microcosm of the rise of

kind of impact that cryptocurrencies have

cryptocurrencies as a whole.

or are allowed to have.

even

believe

that

has

billion

has in

increased

2020.

This

Source: Statista

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by rapid

Two Sides of the Same Coin

Simply

put,

cryptocurrency

just

Globally, today the number of people who

another medium of exchange like the U.S.

have access to the internet outweigh the

dollar or the Euro. However, unlike these

number of people who have access to

traditional

traditional banks. Thus, a sizable part of

currencies,

completely

digital and uses encryption techniques for

the

unbanked/underbanked

population

the

can

access

creation

monetary

units

and

the

internet.

simply

verification of funds transfer. One of the

obtaining a cryptocurrency wallet through

major

the internet, these people can now use

technologies

that

make

the

existence of cryptocurrencies possible is

financial

the

something which they couldn’t do before.

blockchain.

Being

decentralized

services

establish

Evidently,

peer

enables

benefits that a fiat money is unable to

transactions

provide but ironically enough, some of its

participants without

blockchain

confirm

need

for

central

clearing

the

acceptability.

reasons

popularity

behind

the

growing

cryptocurrencies.

has

many

major strengths also create difficulties for

authority. This decentralization is one of main

cryptocurrency

credit,

ledger of all transactions across a peer-tonetwork,

and

For

when

instance,

comes the

widespread

decentralization

Decentralized currencies are free from the

cryptocurrencies ensures that the network

shackles of national monetary policies and

is in control of the transactions rather

immune to inflation or deflation. Since

than a government or institution and this

these decentralized cryptocurrencies do

provides greater confidentiality to each

not

for

transaction. Yet, this confidentiality also

also

means that, in comparison to traditional

need

successful

banks

middlemen

transactions,

they

are

protected from the risks of bank failures or

currencies,

exorbitant

with

transaction

fees.

criminals

vested

and

interests

can

hide

their

easily

with

nefarious

facilitate easier international payments as

cryptocurrencies.

they are not constrained by exchange rates

governments and central banks wary of

and would incur negligible transaction fees

cryptocurrency

compared to the current system. However,

importantly,

it is in the field of financial inclusion where

widespread adoption of cryptocurrencies

the

can

benefit

the

decentralization is the most pronounced.

make

people

decentralized cryptocurrency would even

potential

dealings

other

Naturally,

transactions.

central their

banks

fear

monetary

More that

policies

ineffective and result in the diminishing of their influence on the economy.

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makes

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A related apprehension is that cryptocurrencies can make the entire banking system irrelevant and lead to a massive destruction of revenues and jobs that the banking system generates. Unsurprisingly, many countries like Bangladesh and Macedonia have already declared cryptocurrencies as illegal1. India too, is set to go down the same road by banning all private cryptocurrencies through “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. Instead, it aims to have a central bank digital currency (CBDC) of its own that would be introduced, maintained and regulated by the Reserve Bank of India, the country’s central bank. While, the digital currency would be based on the same blockchain technology, it would differ from the cryptocurrencies like Bitcoin as it would be regulated by the RBI. Nonetheless, with the passage of time, on an overall basis, the scepticism around cryptocurrencies has reduced and the unprecedented events of the year gone by have helped the popularity of this new-age fintech application grow. In the pandemic year, even as the U.S. Dollar slumped, cryptocurrencies soared. This has led many to believe that 2020 marked the start of an era that would see cryptocurrencies scale new heights.

What lies ahead The fans of cryptocurrencies have several reasons to be optimistic. Firstly, of late, giant multinational companies like JP Morgan Chase and PayPal have shown great interest in cryptocurrencies.

2019,

Morgan

Chase

announced

its

plans

for

its

own

cryptocurrency JPM Coin and recently in 2020, PayPal allowed its users to use cryptocurrencies. In addition to this, 2020 saw the erosion of trust in all traditional currencies as countries across the world resorted to massive money printing in order to deal with the effects of the COVID-19 pandemic. However, sceptics on the other side of the spectrum point out that the future of cryptocurrencies isn’t as fascinating as its fans think it to be. The sceptics believe that the fundamental reason behind this is the fact that crypto assets can serve as either useful hedges or handy means of payment but not easily both. For the latter, stable coins, such as the crypto assets that are pegged to the dollar, have proven useful. They are relatively stable but as a trade-off they have had to create institutional layers to preserve the value which has made them riskier and less transparent than the dollar-based system itself. Additionally, they would always carry the risk that their peg to the dollar may someday be broken. Further, given the scepticism of the central banks, with more popularity these stable coins may attract more regulations which can limit many of its advantages over the traditional banking sector and thus make them less attractive.

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On the other hand, crypto assets like Bitcoin are not pegged to any national currency. They can be popular as vehicles for hedging and speculation but given how rapidly their value can rise or fall, it would be extremely risky to use them for the bulk of one’s transaction. Traditional currencies like the dollar or the Indian Rupee are far less volatile and hence much safer to use. Several major corporations have added crypto assets. In the future, crypto assets may become like gold and account for a good chunk of their balance sheets and hence imply a high price for the main crypto assets. However, even these corporations would not reject the idea of a heavily regulated crypto assets and crypto-linked financial institutions. Greater regulation would dampen down many of the advantages of a crypto asset and in turn, impede their growth. In other words, with growing popularity, many of the main benefits of cryptocurrencies would be subdued. In fact, mainstream financial institutions can even replicate the success of cryptocurrencies by introducing electronic reserve currencies. Therefore, cryptocurrencies may still have a long way to go before it can truly replace the U.S. Dollar

the

world’s

reserve

currency.

Nonetheless,

2020

has

shown

that

cryptocurrencies are evolving into a formidable challenger to traditional currencies and as Ruchir Sharma pointed out in one of his articles, the message of 2020 to governments was clear: They should print money at their own risk because crypto rivals are gaining traction fast.

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Impact of Production Linked Incentive Scheme on the Manufacturing Sector By Saurav Motiramani

What is Production Linked Incentive (PLI) Scheme? In order to boost domestic manufacturing and cut down on import bills, The Ministry of Electronics and Information and Technology (MeitY) notified the Production Linked Incentive (PLI) Scheme on April 1, 2020 a scheme that aims to expand existing manufacturing units for Large Scale Electronics Manufacturing with an aim to boost domestic manufacturing of mobile phones in India & give companies incentives on incremental sales from products manufactured in domestic units. Apart from inviting foreign companies to set shop

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in India, the scheme also aims to encourage local companies to set up. For this, the government has committed nearly ₹1.97 lakh crores, over 5 years starting FY 2021-22. With the launch of this PLI Scheme, the government looks forward to attract large investments in manufacturing mobile phones including the Assembly, Testing, Marking and Packaging (ATMP) units. Now, the Central Government looks forward to further expand the ambit of the PLI Scheme with the inclusion of about ten more sectors under it, apart from mobile phones, pharmaceutical ingredients and medical devices. Know the important details of the scheme below:

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Impact on various industries Production Linked Incentive has a huge impact on various sectors some of them being: Advance Chemistry Cell (ACC) Battery ACC battery manufacturing represents one of the largest economic opportunities of the twenty-first century for several global growth sectors, such as consumer electronics, electric vehicles, and renewable energy. The PLI scheme for ACC battery will incentivize large domestic and international players in establishing a competitive ACC battery set-up in the country. Electronic/Technology Products India is expected to have a USD 1 trillion digital economy by 2025. Additionally, the Government’s push for data localization, Internet of Things market in India, projects such as Smart City and Digital India are expected to increase the demand for electronic products. The PLI scheme will boost the production of electronic products in India. Automobiles & Auto Components The automotive industry is a major economic contributor in India. The PLI scheme will make the Indian automotive Industry more competitive and will enhance globalization of the Indian automotive sector. Pharmaceuticals drugs The Indian pharmaceutical industry is the third largest in the world by volume and 14th largest in terms of value. It contributes 3.5% of the total drugs and medicines exported globally. India possesses the complete ecosystem for development and manufacturing of pharmaceuticals and a robust ecosystem of allied industries. The PLI scheme will incentivize the global and domestic players to engage in high value

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production. Telecom & Networking Products Telecom equipment forms a critical and strategic element of building a secured telecom infrastructure and India aspires to become a major original equipment manufacturer of telecom and networking products. The PLI scheme is expected to attract large investments from global players and help domestic companies seize the emerging opportunities and become big players in the export market. Textile Products: MMF segment and technical textiles The Indian textile industry is one of the largest in the world and has a share of ~5% of global exports in textiles and apparel. But India’s share in the manmade fibre (MMF) segment is low in contrast to the global consumption pattern, which is majorly in this segment. The PLI scheme will attract large investment in the sector to further boost domestic manufacturing, especially in the MMF segment and technical textiles. Food Products The growth of the processed food industry leads to better price for farmers and reduces high levels of wastage. Specific product lines having high growth potential and capabilities to generate medium- to large-scale employment have been identified for providing support through PLI scheme.

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High Efficiency Solar PV Modules Large imports of solar PV panels pose risks in supply-chain resilience and have strategic security challenges considering the electronic (hackable) nature of the value chain. A focused PLI scheme for solar PV modules will incentivize domestic and global players to build large-scale solar PV capacity in India and help India leapfrog in capturing the global value chains for solar PV manufacturing. White Goods (ACs & LED) White goods (air conditioners and LEDs) have very high potential of domestic value addition and making these products globally competitive. A PLI scheme for the sector will lead to more domestic manufacturing, generation of jobs and increased exports.

Speciality Steel Steel is a strategically important industry and India is the world’s second largest steel producer in the world. It is a net exporter of finished steel and has the potential to become a champion in certain grades of steel. A PLI scheme in Specialty Steel will help in enhancing manufacturing capabilities for value added steel leading to increase in total exports. What incentive is offered to companies under the PLI Scheme? The Production Linked Incentive (PLI) Scheme provides 4% to 6% incentive on incremental sales (over base year, 201920) to eligible companies for manufacturing goods for 5 years period, subsequent to the base year. How does the whole process works?

Source: PLI Guidelines Presentation

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What lies ahead India’s manufacturing share in the GDP, of late, had been shrinking as compared to our ASEAN neighbors. India’s exports have not had much to show, if we leave aside services exports, caused by high diversification and low specialization. Therefore, the strategy needed if India aspires to be a major exporter, is to specialize in areas of comparative advantage and achieve significant quantity expansion. India aims to become a USD5 trillion economy by 2025. Value-added manufacturing is expected to be the key contributor. In my opinion the PLI Scheme resonates with the ambitious Aatma Nirbhar Bharat campaign and Make in India initiative to make India a self-reliant nation. The objective is really to make India more compliant with our WTO (World Trade Organization) commitments and also make it non-discriminatory and neutral with respect to domestic sales and exports. The idea of PLI is important as the government cannot continue making investments in these capital-intensive sectors as they need longer times for start giving the returns. Instead, what it can do is to invite global companies with adequate capital to set up capacities in India.

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Impact of Production Linked Incentive Scheme on the Manufacturing Sector By Yash Bhatt For the past couple of decades, India has been mainly focused on and is generating the

majority

service

and

its

revenue

agriculture

from

sector

the .The

incumbent government has always tried to increase the share of manufacturing ,but failed to do so. On the other hand, our competitor neighbour China and even the other small Asian countries like Korea and Japan has been putting a lot of emphasis and

resources

the

manufacturing-

based industry and thus became a critical part of the global value chain in various sectors.

This

focus

manufacturing

helped them bring in more investments, generate employment and become exportoriented economies.

The ever increasing and dominant manufacturing industry of china is key reason behind its positive

A bit late , but India has finally realized

growth rate even during Covid-19 pandemic

that to achieve a 5 trillion USD economy , focusing

and

manufacturing

emphasizing is

the

key

on More

importantly , because of the COVID-19 , the whole supply chain of companies in every industry is disrupted . This pandemic is worse for us than many other countries mentioned

earlier

because

our

overdependence on import of so many products .

country , that is the economy ,and thus and

improvement

manufacturing based companies is the need of the hour for India .

Infineeti

bolster

the

manufacturing

sector,

the

Government of India has introduced the PLI

This has crushed the backbone of our advancement

scheme(Production Linked Incentive Scheme) in April 2020 . Under this scheme, the government plans

to incentivize

the companies of some

selected sectors (3 + 10) , who domestically produce their goods .The aim is to enhance India’s manufacturing capabilities and increase exports

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will

also

help

achieve

PLI Scheme Distribution :

the

government’s dream of “Atma Nirbhar Bharat” ,that is , to make our country self sustaining , competitive and self-reliant . The government of India has chosen these sectors strategically . Taking into consideration , what the whole world went through , preference has been given to below mentioned industries which thrived (medical and pharma manufacturing industries

industries)

which

will

and

the

thrive

restrictions are lifted and government all around the world will put money in the economy by building infrastructure and providing cheap loans(Example: Steel industry, automobile Industry). Various Sectors under the PLI , with their respective incentives

Impact on Automobile Sector

Indian automotive industry has a large multiplier

The auto industry is one of the biggest direct

effect as massive amounts of raw materials such as

and indirect contributors to our economy. It

steel, aluminium, plastics, and other minerals and

has a large multiplier effect on our economy.

resources are used in the production of a car

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Speaking of numbers , it contributes around 7 per cent to India’s GDP and around 49 per cent to India's manufacturing GDP . India also became the fifth-largest auto market with sales reaching 3.81 million units. The automobile industry is also one of the largest employment providers in the country and employs close to 29 million people across the country.

supply chain standpoint. Auto component manufacturers said that the incentives will help the sector to reduce import and become netexporter.

Impact on Steel Sector The steel industry is one of the fastest growing industries in the country. Steel is a strategically important industry and India is the world's second largest steel producer in the world. It is a net exporter of finished steel and carries the potential to become a champion in certain grades of steel. Thus a PLI scheme in Specialty Steel will help in enhancing manufacturing capabilities for value added steel leading to increase in total exports happening in the country.

With close to 57000 crore set aside for it under PLI, it is scheme biggest beneficiary. The PLI scheme will make the Indian automotive industry more competitive and will enhance globalization of the Indian automotive sector. This will also improve export .With increasing auto production and the government giving incentives, and this eventually help the consumers . This will therefore help in demand generation and help us in reviving the economy thus making us reach our Although India is a net exporter of steel in terms of quantity, it still remains a net importer of prime minister's vision of a 5 trillion economy. ‘specialty steel’ owing to limited or nil production After the scheme has been launched following capacity for steel grades such as high strength announcements has been made by domestic and steel, electrogalvanized steel, heat-treated steel, asymmetrical rails, bearing steel, valve steel, tool international companies & die steel etc. The proposed PLI scheme will Ola plans to invest $2 billion in TN two-wheeler incentivize production of such ‘specialty steel’ grades. It is envisaged that the PLI scheme shall factory. Ashok Leyland has commenced production of boost the production of identified specialty steel buses at its new plant in Andhra Pradesh. The grades from the current 16 MTPA to over 37MTPA commercial production of the buses at the in 5 years, while attracting investments of over plant set up at Vijayawada commenced on 19 Rs 35,000 Cr. On a bigger picture this will help in achieving the USD 5 Trillion economy, February 2021. Hyundai Motor will invest over INR 3,200 crore in four years in India to ramp up product portfolio and launch cars, including a series of e-vehicle. Foreign automobile companies have contributed to the development of the industry ecosystem leading R&D activities, exports, and new product introductions, and introducing latest technologies into the sector through technology transfer. This scheme will help in localizing manufacturing and promoting greater levels of indigenization from a

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Impact on the Electronics Sector (Mobile Manufacturing

Specific

Electronic

components) in India With an objective to renovate core components and create a sustainable environment for the industry to compete at a global level and India to be among the top three hubs of global mobile manufacturing, the Ministry of Electronics and Information Technology (MeitY) and the GoI announced the PLI for large-scale electronics manufacturing. The scheme proposes production-linked incentives to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including assembly, testing, marking and packaging units. The scheme will extend an incentive of 4-6% of goods manufactured in India and covered under target segments to eligible companies for a period of five years after the defined base year. The scheme is likely to benefit 5-6 major global players and a few domestic champions in the field of mobile manufacturing and specified electronics components and bring in large-scale electronics manufacturing in India.

The scheme has a direct employment generation potential of over 200,000 jobs in the next five years. However, the scheme is expected to lead to large-scale electronics manufacturing in the country and create employment opportunities. Indirect employment will be about three times of direct employment as per industry estimates. Thus, the scheme is expected to generate employment potential of ~800,000. India’s incentive scheme for large-scale electronics manufacturing in the country could help add 0.5% to the economic growth and ~US$ 55 billion to the country’s GDP in the next five years.

Scope for the Mobile Manufacturing Sector in India India is now the second-largest mobile phone manufacturer in the world after China and about 300 million phones were assembled here in 2019 alone. The number of mobile phone manufacturing/assembling plants in the country has increased from just two in 2014 to around 100 in 2019. Now, with manufacturing companies looking to have another unit outside China, India could well be one of the beneficiaries.

Phone manufacturing around the world

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Thus, witnessing this growth, India has drawn huge interest from global and local original equipment manufacturers (OEMs). If that interest translates into action, it will help India attract investments that would otherwise have gone to China. Global OEM and component manufacturers are increasingly choosing to set up or extend their base in the country. Domestic brands have also got a boost. The large number of applicants for the PLI scheme says it all.

Foxconn Hon Hai, Wistron and Pegatron are contract manufacturers for Apple’s iPhones and are also thinking about applying for the scheme. Indian

companies

such

Lava,

Micromax, Padget Electronics, Sojo, UTL and Optiemus have also applied for benefits under the PLI scheme.

Global players such as Wistron, Pegatron, Foxconn and Hon Hai from Taiwan, Samsung from South Korea, as well as companies from Germany and Austria have applied for benefits under the PLI scheme so far. The government is wooing companies to manufacture products here through its ‘Make in India’ programme. Samsung, Apple, Oppo and Vivo are some companies looking to expand their presence in India.

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Dixon,

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Analyzing The PLI Scheme For Battery Manufacturing

The PLI scheme's battery policy aims to make manufacturers globally competitive, boost the lagging exports, achieve economies of scale and produce cutting edge products. This is an effort to promote the use of electric vehicles (EV), which have faced headwinds in India given the high battery costs and lack of supporting infrastructure. Indian companies generally import batteries, which account for more than half the cost of an EV. The government has proposed the building of local manufacturing facilities, seeking to reduce the cost and encourage competition. The government has demonstrated its desire to push India towards clean energy and transportation, exemplified by the ambitious target of 450 GW of renewable power generation by 2020. Apart from championing EVs, there has been a notable push for round the clock supply of power from renewable energy, which involves providing for energy storage, through ACC batteries.

The scheme proposes that the relevant state government, central government, and manufacturer enter into a tripartite agreement. The state government would extend its support to the private sector by providing land for setting up the facility, assisting in procuring permits and licences, providing trunk infrastructure and so on. This assurance from the state government will address some of the most common concerns of investors. The scheme adopts a quality and cost based selection (QCBS) method to evaluate bids. Typically, the government follows the QCBS method for the procurement of goods and services; however, this is one of the first instances of the government adopting the QCBS method for such a program. Both the subsidy quoted and the value addition offered by the bidder would be taken into account during the selection process. The scheme is positioned as a critical component of the government's flagship Atmanirbhar Bharat (self-sufficient India) programme that seeks to create a self-reliant Indian manufacturing ecosystem. The government plans to impose tariffs on imports of lithium-ion cells for the next 10 years. With the country only manufacturing battery storage packs and heavily relying on Chinese imports for the rest, the aim is to become self-sufficient across the EV value chain by 2025. Ampere Electric, the electric-mobility arm of Greaves Cotton, will invest INR 700 crore in a phased manner over 10 years to set up a manufacturing plant at Ranipet in Tamil Nadu. It will have an initial capacity to produce 1 lakh units in a year.

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"Witnessing the

Tata Motors-owned Jaguar Land Rover announced plans to become a net zero carbon business by 2039 for which its Jaguar brand will become an all-electric luxury vehicle marque from 2025. The government will adopt an integrated approach and come out with a policy to make India self-reliant in the area of advanced battery technologies to power electric vehicles and other applications. Hero MotoCorp-backed electric two-wheeler maker Ather Energy will invest INR 635 cr in the next five years at its manufacturing facility in Tamil Nadu to scale up production. They will also manufacture lithium-ion batteries at the facility.

present growth, many opportunities and set-ups have come up in India" Hinduja Group company and Gulf Oil Lubricants India have partnered with Gulf Oil International for investing and exploring opportunities in the electric vehicle charging space.

WRITER'S OPINION I think the introduction of the PLI scheme is a great decision by the government of India . Considering our economic condition , even before the start of the pandemic , promoting the industries , domestic and international is a step in the right direction .The sectors chosen are definite to grow. The government also realized the importance of improvement in manufacturing , not just for the Indian economy , but for the whole world as more and more industries are finding policies and tax rates good for their business. The scheme will work as a cherry on top of that. Also, the unused scheme funds can be utilized by the other sectors, thus ensuring the optimal utilization of those funds. This is a significant opportunity for the private sector to participate and accumulate benefits under the PLI scheme and at the same time, contribute to India's large and growing manufacturing sector.

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Impact of Production Linked Incentive Scheme on the Manufacturing Sector By Nitesh Singh, IIFT

Foreword 2020 was by far the most distressing year since it was the year of a deadly pandemic that wreaked havoc on people's health, industries, and communities all over the world. The Indian economy was also harmed as a result of the resulting lockdown, which unveiled supply chain flaws and delays in working around social distancing norms. De-growth in the economy, contraction in GDP, widening of fiscal deficit, and high inflation has all illustrated the economy's extreme strike in the past year.

On the indirect tax front, there are plans to simplify customs duty provisions by revising their structure, making sector-specific improvements in customs duty rates, and streamlining those procedures, and making enforcement easier. Overall, the reforms announced seem to be in the right direction, given the fiscal constraints that the Finance Minister had to work with. If implemented in a timely manner, these initiatives can help to accelerate overall growth, as well as healthcare development, increased consumption, and infrastructure development.

Faced with the daunting task of bringing the economy out of the grip of de-growth, a slew of fiscal and non-fiscal initiatives were implemented during the year to help the economy recover from the pandemic's aftermath. This is supported by the pre-budget Economic Survey's forecast of 11% real GDP growth in 2021. The Hon'ble Finance minister has set out an idea for ‘AtmaNirbhar Bharat’, supported by six columns: welfare and health, physical assets/money resources and infrastructure, property growth for the Republic of India, reinvigorating human capital, and Research &Development, along with minimum government-most governance.

RUPEE COMES IN

In addition, initiatives to attract foreign investment in the infrastructure market, affordable housing/rental housing, tax incentives for IFSC, and start-ups have been announced, all in line with overall objectives outlined in the pillars. RUPEE GOES OUT

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Opinion

The ‘Production Linked Incentive (PLI)’ scheme has been presented by Government of India to uplift cost competitiveness and its measures in core sectors facing hard, stiff competition and backlash from other small and large manufacturing markets, drifting swiftly, and deriving knowledge from other nations' hypersuccess industrial/manufacturing models. The scheme is strategically targeted at industries that have demonstrated global expertise, growth potential, or a heavy reliance on imports. It offers financial benefits to businesses that contribute to sales of goods made in the United States. When juxtaposed with the government's previous declarations on lessening the corporate tax, it paints a picture of a gripping case for deep pocketed, capital-rich companies to participate, invest and boost capacity in the nation. However, the scheme is not a long-term solution for improving global competitiveness. It would be impractical to expect India to be able to manufacture anything on its own. The idea of making India globally competitive, will be defeated if high customs duties on a variety of goods are maintained for an extended period of time. Tariffs on imports will also be needed to be phased out. Down the line, chief Asian manufacturing jumbos such as Korea, Vietnam, China among others, have spot-lighted on manufacturing-based businesses and have become crucial parts of the worldwide value chain in a plethora of subdivisions. This emphasis allowed them to attract more investments, create jobs, and develop export-oriented economies. India, on the other hand, which concentrated more on agriculture and services, was unable to match the size of manufacturing and jobs in its peer countries.

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"The PLI scheme is supposed to produce better results because it is output-oriented and has ‘milestonebased incentivization"

More job opportunities for India's rural population will be provided due to the increased investment in the manufacturing sector, as well as increased contribution to GDP growth. The PLI scheme is supposed to produce better results because it is output-oriented and has ‘milestone-based incentivization’, as opposed to previous schemes that were more dependent on multiple input parameters. It would draw broad sector participants, advanced technology, and grow an interconnected ecosystem of products because of its output-oriented existence. It would lure large sector participants, cuttingedge technology, and grow a unified interdependent environment with manufacturing efficacy and economies of scale because of its production-oriented existence. Moreover, the PLI scheme must be properly assisted by a comprehensively integrated solution that encompasses the entire manufacturing ecosystem and caters to the other associated economic ecosystems. In the next five years, the country's minimum output as a result of the PLI schemes is

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Opinion and Remaining Challenges

"PLI is unique in its architecture, despite this, it is impossible to exclude the likelihood of operational inadequacies." Kickstart towards the path of self-sufficiency

expected to be about INR 3.92 lakh crore. From 2021 to 2022, the scheme has the ability to generate nearly 1.40 crore man-months of jobs, essentially doubling the current workforce across industries. This will help our country's MSME sector develop even further.

The Remaining Challenges While the scheme's purpose can be appreciated, the results must be monitored. Historical tendencies along comparable outlines, such as the four-decade-old Freight corridors/Special Economic Zones(SEZ) understanding and the more than two-decade-old manufacturing estates dedicated to augmenting services/products value superfluities, have faltered to harvest the anticipated results. Similarly, the Merchandise Export from India Scheme(MEIS), which are export incentive schemes, were afflicted badly by bureaucratic delays and faltered to paint the desired picture. In fact, it actually intensified uncertainty and developed islets of self-governing rules and regulations, resulting in unequal and unsatisfactory indifference to challenging and competing interests.

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PLI is unique in its architecture, despite this, it is impossible to exclude the likelihood of operational inadequacies and the complications this indicates. Performance of a PLI scheme in the mobile and manufacturing sector cannot be expected in other industries since the nature and input elements for mobile manufacturing are different from those for other industries. These programs are just a band-aid solution for the real problem, which is the high operating costs and complexities of doing business in India. Only by resolving these issues India will become a desirable location for new business ventures. Previous experiences have shown that such a challenge can stifle desired outcomes, in spite of the fact that PLI's full & final print is yet to be published. Potential investors with a large capital base, will show keen interest in manufacturing estates which have the right provisions in availability, accessibility of energy, labor laws and land acquisition laws, and quality manpower, etc., in short, the appropriate ecosystems in different areas. However, the query that ascends is whether India will provide a corporate-welcoming milieu to endorse business/production at all levels.

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Remaining Challenges & way forward The PLI schemes will continue to act like a shortlasting incentive bubble, until all favorable conditions are met. For such incentives/subsidies, specific clauses are critical; otherwise, the clamor for their continuation will continue, particularly when the market fluctuates.

competitive landscape of commerce and export markets and nations may categorize and tag it as subject to individualistic choices in the longer run.

Consistent and headstrong policymaking seems difficult, as long as, government's bolster comes in the form of subsidies, subventions and paybacks tied to a number of thresholds. The COVID-19 go-slow may have polarized the assortment of ten title-holding sectors, but the

The Way Forward India's manufacturing competitors, such as Korea and Vietnam, had strict trade-oriented industrial policies. They were combined with lower-wage jobs, labor law stability, lower enforcement, a great ecosystem, and tax and duty relief to encourage export. India's stagnant manufacturing can be accredited or rather discredited to factors like complicated and time-consuming compliances, high capital costs, land and power availability, a shortage of qualified labor, and a fragmented supply chain with heavy reliance on imports. Although India is committed to establish itself as an investment attraction hub, the other manufacturing powerhouses are becoming more appealing and establishing themselves in dynamic response to shape-shifting paradigms. However, for MNCs seeking to establish facilities outside of China, the PLI scheme would offer a super significant boost, as per the current scenario. An integrated solution that encompasses the entire manufacturing ecosystem, would be needed to bolster the PLI scheme. The bigger and larger trial will be safeguarding interests of investors who not only come to India under this scheme but are also able to efficaciously set up their production estates, with iota of delays and capital price overruns. Steps like actualization of ease of doing business, labor law simplification, a large professional resource base, a check on the import duty, and promotion of R&D initiatives of certain main goods in the early years to avoid disrupting existing supply chains will ensure successful scheme execution and long-term market viability. Additional measures are needed to support the USD 5 trillion economy's ambition and to knock out the intercontinental front-runners, the government should consider incentivizing key participants to establish innovation and research substructures in almost of the associated fields. In the current

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environment, such a strategy and emphasis on export-oriented initiatives could seem improbable. However, as the global trade situation improves, India will be well positioned to reap benefits of these industrialization initiatives in terms of large businesses, increased productivity, and job opportunities. Talking on aspects of increased productivity, technological advancements, large businesses, and job opportunities, India will definitely be at a vantage point to garner the benefits of these economic development ingenuities.

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INFineeti Budget Edition 2021

Articles inside

Nitesh Singh, IIFT

Pankaj Yadav

Amrit Mohapatra, JNU

Sourav Motiramani

Aritra Banerjee, NMIMS

Yash Bhatt

Rajat Shah, IIFT

Chetan Singh, IIFT

Stepping Stones for Cryptocurrency Nikhil Singh Gangwar, IIFT