11 minute read
Yash Bhatt
By Yash Bhatt
For the past couple of decades, India has been mainly focused on and is generating the majority of its revenue from the service and agriculture sector .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 on the manufacturingbased industry and thus became a critical part of the global value chain in various sectors. This focus of manufacturing helped them bring in more investments, generate employment and become exportoriented economies.
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A bit late , but India has finally realized that to achieve a 5 trillion USD economy , focusing and emphasizing on manufacturing is the key . 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 of our
overdependence products . on import of so many
This has crushed the backbone of our country , that is the economy ,and thus advancement and improvement in manufacturing based companies is the need of the hour for India . The ever increasing and dominant manufacturing industry of china is key reason behind its positive growth rate even during Covid-19 pandemic
To
bolster Government the manufacturing sector,
of India has introduced the
the PLI 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
It will also help to achieve
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) and the industries which will thrive as 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).
PLI Scheme Distribution :
Various Sectors under the PLI , with their respective incentives
Impact on Automobile Sector
The auto industry is one of the biggest direct and indirect contributors to our economy. It has a large multiplier effect on our economy. Indian automotive industry has a large multiplier effect as massive amounts of raw materials such as steel, aluminium, plastics, and other minerals and resources are used in the production of a car
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.
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 prime minister's vision of a 5 trillion economy.
After the scheme has been launched following announcements has been made by domestic and international companies
Ola plans to invest $2 billion in TN two-wheeler factory. Ashok Leyland has commenced production of buses at its new plant in Andhra Pradesh. The commercial production of the buses at the plant set up at Vijayawada commenced on 19 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 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.
Although India is a net exporter of steel in terms of quantity, it still remains a net importer of ‘specialty steel’ owing to limited or nil production capacity for steel grades such as high strength steel, electrogalvanized steel, heat-treated steel, asymmetrical rails, bearing steel, valve steel, tool & die steel etc. The proposed PLI scheme will incentivize production of such ‘specialty steel’ grades. It is envisaged that the PLI scheme shall boost the production of identified specialty steel grades from the current 16 MTPA to over 37MTPA in 5 years, while attracting investments of over Rs 35,000 Cr. On a bigger picture this will help in achieving the USD 5 Trillion economy,
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
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 as Lava,
Dixon, 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.
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.
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.
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.
