Budget may infuse 50k-cr in PLIs to cut supply shocks

ByRajeev Jayaswal, New Delhi
Jan 27, 2023 12:04 AM IST

The government may infuse a corpus of about ₹50,000 crore to the existing ₹1

The government may infuse a corpus of about 50,000 crore to the existing 1.97 lakh crore production linked incentive (PLI) scheme to boost local manufacturing and to ease supply side uncertainties faced by domestic industries due to shortage of shipping containers and intermediate inputs, two officials aware of the development said.

HT Image
HT Image

The government is considering proposals to add five or six new sectors, including shipping containers, toys, and chemical intermediates to further boost local manufacturing after the success of 14 PLI schemes, they said. Raising outlays of certain existing scheme is also under consideration ahead of the Union Budget, the officials added, asking not to be named.

The 14 PLI schemes, notified between April 2020 and September 2021 have shown tremendous progress towards government’s “Atmanirbhar Bharat Abhiyan” (self-reliant India initiative) as they have attracted firm investment commitments of over 2.5 lakh crore ,and this number is growing, one of the officials said. The government aims to add at least 38 lakh crore additional production through the 1.97 lakh crore-PLI schemes in five years and create 42 million man-months of jobs, he added.

“PLI scheme, by far, has been the most transformative reform, covering 14 sectors, which have attracted investment commitments to the tune of INR 2.5t [trillion] (US$31.3b),” global consulting firm EY said in a report – “India@100: Realizing the potential of a US$26 trillion economy”, – which was released last week on the sidelines of the World Economic Forum at Davos.

“Based on discussions with stakeholders, it is realised that the scope of the PLI scheme needs be deepened and expanded, especially to cut import dependence on intermediate inputs and shipping containers to make India-made products globally competitive,” a second official said.

“Costs of commodities, inputs and finished goods surged due to supply chain breakdowns that not only eroded competitiveness of Indian goods in global markets but also led to high inflation. Hence, the need to focus on these areas has been felt. This may find a mention in the Budget,” he added.

The EY report projected that India may become a $26 trillion economy by 2047 with a sixfold increase in per capita income to $15,000, driven by the government’s policy push to manufacturing for both domestic market and exports. “The initiative to aid manufacturing comprises competitive direct tax rates, a simplified indirect tax regime, incentives under Production Linked Incentives (PLI), a better quality of infrastructure, access to renewable energy and other factors,” it said.

“The considerations for expanding PLI to other sectors is also driven by global trade. For instance, the Russia-Ukraine situation has resulted in a global shortage of shipping containers and therefore, container manufacturing potential in India may be exploited through PLI,” said EY India tax partners Saurabh Agarwal and Kunal Chaudhary in a joint email reply.

Experts said PLI schemes are considered better than earlier incentives that offered tax concessions.

“As a departure from earlier excise free zones, these central government programs are state agnostic and help subsidise investors on a pan-India level and across domestic and export operations. Furthermore, such programs do not distort tax framework (through exemptions), are better targeted by way of focused sectors and defined thresholds of economic activity and put India unambiguously as a strong contender for a regional manufacturing hub, on the global boards of large multinational corporations,” said Saurabh Kanchan, partner at Deloitte India.

Industry is also demanding that the corpus for existing schemes be raised. PHD Chambers of Commerce and Industry (PHDCCI) president Saket Dalmia said there is a need to increase the outlay for some of the existing sectors. “Especially pharma and electronic manufacturing, keeping in view their success and further strengthening the country’s manufacturing and exports,” he said.

According to Manish Chowdhury, head of research at Stoxbox, an equity research firm, stressed on the need to increase the coverage of PLI scheme to more sectors in order to capitalise on China-plus-one and Europe-plus-one opportunities. “Some of the sectors which should garner government’s attention includes leather and footwear, toys, cotton-based textiles, electrolysers, furniture, shipping containers and chemicals for paint and fertilisers,” he said.

The 14 existing PLI schemes are -- Mobile Manufacturing and Specified Electronic Components (or Large Scale Electronics Manufacturing), Critical Key Starting materials (KSM)/Drug Intermediaries and Active Pharmaceutical Ingredients, Manufacturing of Medical Devices, Advance Chemistry Cell (ACC) Battery, Electronic/Technology Products (or IT Hardware), Automobiles & Auto Components, Pharmaceuticals drugs, Telecom & Networking Products, Textile Products (MMF segment and technical textiles), Food Products, High Efficiency Solar PV Modules, White Goods (ACs & LED), Speciality Steel, and Drones and Drone Components.

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