Macroeconomic factors are one of the key influencers for the growth of a particular sector. And one of the biggest macroeconomic factors that influence the sectors is “government schemes and incentives”.
India has been a world leader in the IT sector which falls under the service sector and it is the biggest contributor to India's GDP. Over the years, the government has incentives IT companies with SEZ i.e. Special Economic Zone where they get tax benefits. In terms, the IT companies generate huge employment and revenue for the country.
But now our government wants to focus on another key sector where India is lagging but has enough workforce and skillset to flourish. I am talking about the manufacturing sector.
The Indian government has been focusing on manufacturing for a few years now with the “Make in India” initiative. But, let’s be honest. Indian manufacturing ecosystem is too small as compared to China. In fact, China is also known as the manufacturer of the world. Even India has a lot of dependence on China right from Mobile phones to Chinese toys to even the firecrackers and god idols that we use in our festivals. The biggest reason why China became the global manufacturer of the world is because of government support where the manufacturer received various incentives including low-cost power, low-cost land, low-cost borrowing, tax incentives, and many more. This reduced the overall cost of production and hence China became the cost leader by manufacturing products at a huge scale and at lower rates.
But COVID has changed the global scenario. There was already a trade war going on between the US and China and on top of this, COVID disrupted the supply chain of the world. Global companies realized the importance of an alternative to China to minimize the business risk. And that’s where India has emerged as a great alternative.
The Indian government was quick to sense this opportunity and decided to boost the manufacturing ecosystem by introducing a PLI scheme i.e. Production Linked Incentive Scheme.
In Nov 2020, the central government approved a scheme called PLI or Production linked incentive worth Rs 1.45 lakh Cr. This scheme was initially drafted to benefit 10 sectors. But recently our government has further amended the scheme in Budget 2021 by adding 3 more sectors and increased the PLI budget to 1.97 lakh Cr.
So in this article, we will simplify the PLI scheme by understanding what exactly is this scheme, sectors that would benefit from the PLI scheme, the amount allocated to each sector, key companies within each sector.
Alright, let's get started!
What is the PLI Scheme?
The entire idea behind this scheme is to boost domestic production and cut down on imports. This scheme aims to give companies incentives on incremental sales from products manufactured in domestic units. For example, if a company manufactures 10,000 units in India on an annual basis then increases to 20,000 units, the government will issue an incentive for the additional 10,000 units. So that the manufacturers could either produce more for the Indian market or produce in India to export to other countries. PLI scheme would benefit both domestic manufacturers and global players who intend to set up their manufacturing facilities in India. This would create huge employment opportunities in India and make India one of the major manufacturers in the world. On average, this scheme budget is spread over a period of 3-5 years.
Sectors that would benefit from PLI Scheme and key companies within each sector
So this is our analysis of the PLI scheme and various sectors that would benefit. At present we do not have clarity on the additional 3 sectors that the government has mentioned in the Budget 2021. We have tried to include as many companies as possible but we might have missed a lot. Overall, this PLI scheme would not only benefit a few set of companies but would benefit the overall ecosystem, and everything in the economy is linked to each other. This analysis is only for educational purposes to help you understand the measures the government has taken for boosting the manufacturing ecosystem in India.
- Auto and auto component: The auto sector is the biggest beneficiary of the PLI scheme. Government has a lot of focus on the electric vehicle segment and building an ecosystem of power, battery, charging stations, and vehicles. In Budget 2021, Government has announced the “Scrappage policy” of phasing out old and unfit vehicles. The private vehicle would go for a fit test after 20 years and commercial vehicles after 15 years. This would positively impact both the auto and auto component industry. The total budget for the auto and auto component sector in the PLI scheme is Rs 57,000 Cr. Top public companies in auto and auto components include Tata Motor, Maruti Suzuki, Mahindra&Mahindra, Ashok Leyland, Eicher Motor, Hero Motocorp, Bajaj Auto, TVS, Motherson Sumi, and Endurance technology.
- Advance Chemistry Cell (ACC) Battery: Advance Chemistry Cells (ACCs) are the new generation advanced storage technologies that can store electric energy either as electrochemical or as chemical energy and convert it back to electric energy as and when required?, Indian government intends to set up Tesla-style Giga factories based on lithium-ion technology that would be used across electric vehicles. For electric vehicles to become popular, we would need an infrastructure of lithium-ion batteries in the entire country. Not only this, ACC batteries would have a usage in electronic industries and electricity grids. This sector has received Rs 18,100 Cr. Top companies in battery manufacturing include Amara Raja Battery and Exide Battery. However, many companies have entered into ACC battery including Tata Chemical. Even Reliance is planning to enter into lithium ION battery manufacturing. Even companies like Adani and Mahindra are planning to enter into lithium-ion battery manufacturing.
- Pharmaceutical: 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 a complete ecosystem for the 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 production. Rs 15,000 Cr. With this, the Pharma sector is expected to add 20,000 direct and 80,000 indirect jobs for both skilled and unskilled personnel. Top companies in the Pharma sector include Sun Pharma, Dr. Reddy, Divis Lab, Cipla, Lupin, IPCA lab, Pfizer, Laurus Lab, Gland Pharma, etc., are not the only companies that would benefit from the PLI scheme. There are many more. I have only highlighted the top players in each sector.
- Textile: In the textile segment, the manufacturers producing man-made fibers (MMF) i.e. synthetic fiber and technical textiles (industrial application) would be given an incentive by the center from a corpus of Rs. 10,683 crores over 5 years. The objective of the scheme is to promote the building of new facilities and attract investment in the man-made fiber sector. In the latest budget, the government has also announced the creation of 7 mega textile parks in the country. Top companies in textile include Trident, Welspun, Garware technical fiber, etc.
- 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. This would include core transmission equipment, wireless equipment, IoT devices, switches, routers, etc. The total budget for this sector is Rs 12,195 Cr. Top companies in this sector include Reliance Jio, Bharti Airtel, Tejas network, Tata Communication, Tejas Network.
- Food Products: There is increasing demand for frozen food, ready-to-eat food, superfoods, and healthy foods and the government wants to promote food manufacturing for internal consumption as well as export. The total budget allocated to this sector is Rs 10,900 Cr. Top companies include Nestle, Britannia, Hatsun Agro, Tasty Bites, Hindustan Food.
- Electronic/Technology/Products: India is expected to have a $1 trillion digital economy by 2025. Additionally, the Government's push for data localization, the Internet of Things market in India, projects such as Smart City and Digital India are expected to increase the demand for electronic products. The total budget allocated is Rs 5,000 Cr. Top companies in this segment include Honeywell Auto, Dixon Technology, Bharat Electronics, and Amber enterprise.
- High-efficiency solar PV modules: The government has incentivized the solar panel manufacturers as India is still in the nascent stage for solar power. There is still a lot of import and the government wants to reduce the import are promoting domestic manufacturing with a PLI budget of Rs 4,500 Cr. Top companies include Adani Power, Tata Power, Power Grid, JSW Energy.
- White goods (ACs and LED): There would be a growing demand for ACs and LED lights and the government wants to promote local manufacturing and granted a budget of Rs 6,200 Cr. Top companies include Havells, V-Guard, Blue star, and Voltas.
- Specialty 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 an increase in total exports. The total budget allocated is Rs 6,300 Cr. Top companies include Tata Steel, JSW Steel, SAIL, and Jindal Steel.
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: This article is only for educational purposes. Consult your financial advisor before investing your money.
Note: This article is co-authored by Sahil & Juhi. Sahil is the founder of this personal finance academy and Juhi is an investor and finance expert based out of the USA.