CONSTRUCTION IS in full swing at Tirunelveli in Tamil Nadu where Tata Power, among India’s largest integrated power companies, is setting up one of the most modern solar cell and module factories with 4.3 gigawatt (GW) capacity. This Industry 4.0 facility will be fully interconnected and use smart manufacturing tools and technologies, including autonomous mobile robots. The ₹4,000 crore capex factory has already brought out its own solar module. The first solar cell is expected by Q4 of FY24.
Tata Power has availed the Production Linked Incentive (PLI) Scheme for solar cell, module and supply chain manufacturing that entails building of 48,337 MW capacity with ₹18,500 crore government support. ‘’With schemes like PLI and the kind of ecosystem being created, India will be able to meet its renewable energy targets well before deadlines,’’ says Praveer Sinha, managing director and CEO, Tata Power.
Anurag Chowdhary, CMD and CEO of Kolkata-based Himadri Speciality Chemical, is equally bullish about PLI Scheme for his sector. ‘’In many sectors such as mobile phones, solar equipment and battery, we were assembling parts instead of end-to-end manufacturing. PLI will build complete manufacturing ecosystem and value chain to make India atmanirbhar,” he says. Himadri, a leader in carbon speciality chemicals, is planning to invest ₹4,800 crore over six years to create two lakh tonnes capacity for lithium-ion phosphate, a key raw material for making lithium-ion battery used in mobility solutions. Like solar equipment, China controls 90% raw materials for lithium batteries as well as their processing. The first 40,000 tonnes plant that will come on stream by 2027 will be among the first lithium-ion phosphate capacities in India.
Sunil Vachani, chairman of Noida-based electronics manufacturer Dixon Technologies, one of the first to be selected for PLI Scheme to make mobile phones, believes PLI is making India a powerhouse in electronics. ‘’India can be next stop for manufacturing electronics and hardware and not just for import substitution. India exported mobile phones worth $10 billion in FY23 but has the potential to take this to $100 billion,” he tells Fortune India. Dixon, which builds 22,000-27,000 Motorola smartphones every day, apart from other electronic products in its 21 factories, has started making 2-2.5 million mobile phones for Xiaomi every month from third quarter of 2023.
Solar power, bulk drugs, medical devices, automobiles, advanced cell chemistry and IT are among sectors that will benefit from the various PLI schemes government has launched since 2020 to make India atmanirbhar or self-sufficient within five-six years. Will it succeed?
The Big Picture
PLI Scheme will account for 13-15% capex in key sectors in next three-four years and add up to ₹35 lakh crore revenue, says Crisil Research. Government says the scheme, announced for 14 sectors in 2021 (three were added later) with a planned incentive outlay of ₹1.97 lakh crore ($26 billion), has led to a significant increase in production, economic growth and exports.
The commerce ministry says PLI Scheme attracted ₹95,000 crore worth of investments till September 2023. A total of 746 applications (including 176 from MSMEs) in 14 sectors with expected investment of ₹3.65 lakh crore have approved and the investments have led to production or sales of ₹7.80 lakh crore and employment generation — direct and indirect — of over 6.4 lakh. There was a 76% rise in foreign direct investment in manufacturing in FY22 ($21.34 billion), mainly due to PLI incentives. Though most of these sector-specific schemes are in initial stages and will take years to show results, let’s delve deep into the schemes and track their progress.
India is building huge capacities in solar equipment manufacturing and supply chain. Take Tata Power, one of India’s earliest solar equipment manufacturers, with production capacity of 635 MW of modules and 500 MW of cells in Bangalore. The company grew slowly over the years due to poor demand as solar PV developers found it easier and cheaper to import from China. Despite India launching a 500 GW renewable capacity addition plan in 2015, most projects were planned around Chinese equipment, which accounted for 80-85% market. India also did not have manufacturers of raw materials such as polysilicon, cells and wafers. The Covid period, when projects were stalled due to shortage of imports, was an eye opener and made government realise the need to increase solar power equipment manufacturing. After policy decisions like mandatory domestic content, 100% FDI, notification of approved list of models & manufacturers comprising only domestic players, imposition of basic customs duty on imported cells & modules, government announced PLI Scheme for the sector in two tranches with a cumulative target of 48,337 MW and financial support of ₹18,500 crore.
A JMK Research estimate says Tata Power will have the fourth-largest module capacity by 2026 after 10 GW each of Reliance Industries and Shirdi Sai Electricals and ReNew’s 4.6 GW. An ICRA study expects India’s solar PV module capacity to increase from 37 GW to over 60 GW by 2025 with improved backward integration into cell and wafer manufacturing and then to 100 GW as capacity awarded under PLI Scheme comes on stream. “Apart from module, solar OEMs are expected to enhance wafer and cell capacities as well, with cell capacity expected to cross 25 GW by 2025 from 6 GW at present,’’ says Vikram V., vice president & sector head, Corporate Ratings, ICRA.
Reliance Industries, Adani Group and Sri Shirdi Sai Group won the first solar PLI tender for 8.7 GW capacity. In second tranche in March, in order to bring an investment of ₹93,041 crore and generate over 1,00,000 jobs, government approved 39.6 GW solar module capacity, expected to come up within next three years.
Pharma, Bulk Drugs & Medical Devices
PLI Scheme for pharmaceuticals was launched in 2021 with initial outlay of ₹15,000 crore over six years. As against expected investment of ₹17,425 crore, it attracted ₹16,199 crore from 55 applicants in first year, according to a government update in February-end.
Department of Pharmaceuticals also implements two other PLI schemes — for bulk drugs (key active pharmaceutical ingredients or APIs) and medical devices. The first aims to boost production of 41 critical bulk drugs with an outlay of ₹6,940 crore. About 51 projects for 34 drugs had been selected until February; 22 have been commissioned.
India imported about ₹35,000 crore worth of bulk drugs in FY22, about 35% annual requirement. China accounted for 65-70% share. Deepak Jotwani, assistant vice president and sector head, Corporate Ratings, ICRA, says schemes such as PLI and bulk drugs parks can reduce dependence on China by 25-30% in four-five years. Indian companies have already committed ₹4,100 crore of the originally envisaged capex of ₹6,500 crore under PLI for bulk drugs. “A large part of upcoming capacity is for two key APIs, para-amino-phenol and penicillin which, once commissioned and ramped up, will be sufficient to almost replace all imports,” says Aniket Dani, director, Research, CRISIL Market Intelligence and Analytics.
The medical device scheme, with ₹3,420 crore outlay, is encouraging manufacturing of high-end radiotherapy devices, radiology and imaging devices, anaesthetic & cardio-respiratory devices and implants. Investment committed is ₹1,059 crore over five years. Investment of ₹714 crore was reported till end of February. Top multinational companies from U.S. and Europe control over 80% of India’s medical device market for high-end products.
Mobiles & Electronics
“Of all the mobile phones used in India, 99.2% are now made in India,” Union communications, electronics and information technology minister Ashwini Vaishnaw told media recently after visiting the new Dixon Technologies facility in Delhi.
PLI Scheme for Large-Scale Electronics Manufacturing (LSEM) has attracted leading global players Foxconn, Samsung, Pegatron, Rising Star and Wistron. Top domestic companies Lava, Micromax, Optiemus, United Telelinks Neolyncs and Padget Electronics have also participated in the scheme. It attracted ₹5,998 crore investment and led to ₹2,76,903 crore worth of production, including exports of ₹1,28,886 crore, as of March 2023.
India had just two mobile phone factories in 2014. It is now the world’s second largest mobile phone producer. Production of mobile phones rose from six crore in FY15 to 32 crore in FY22. Exports increased from ₹1,566 crore in FY15 to ₹35,696 crore in FY22. Export of electronic goods rose at a compound annual growth rate of 22.39% from ₹39,978 crore ($5.96 billion) in FY17 to ₹1,09,797 crore in FY22 ($14.6 billion). India’s share of global electronics manufacturing grew from 1.3% in FY12 to 3.75% in FY22, say estimates.
Building on success of PLI for mobile phones, government recently launched PLI Scheme 2.0 for IT hardware covering laptops, tablets, all-in-one PCs, servers and ultra-small form factor devices. About 27 manufacturers are expected to invest ₹3,000 crore, produce IT hardware worth ₹3.5 lakh crore and employ two lakh people under the scheme.
Auto, Battery And Steel
PLI for automobiles and auto components has a Budget outlay of ₹25,938 crore from FY23 to FY27. The aim is to boost manufacturing of advanced automotive technology (AAT) products, localisation of supply chain and exports in about 19 vehicle categories and 103 AAT components with focus on electric and hydrogen fuel cell vehicles. A total of 120 OEMs and auto component makers are in the fray. Government expects PLI alone to generate sales of ₹2.31 lakh crore. It expects that PLI for automotive sector, along with PLI for Advanced Chemistry Cell worth ₹18,100 crore and ₹10,000 crore Faster Adoption of Manufacturing of Electric Vehicles Scheme will enable India to build a green and clean EV-based system.
PLI Scheme for telecom, with an overall outlay of ₹12,195 crore over five years to promote production of telecom and networking products, has seen some 42 companies investing in related technologies. Data from Department of Telecommunication till end of October says the scheme has attracted investments worth ₹2,419 crore with sales of ₹34,516 crore.
Steel sector PLI has also shown impressive results. PLI for this sector, with an outlay of ₹6,322 crore, is targeting manufacturing of specialty or value-added steel. There were 79 applications from 35 companies out of which Memoranda of Understanding were signed with 27 companies with committed investment of ₹29,530 crore and downstream capacity addition of 24.78 million tonnes. The domestic steel industry had invested ₹10,730 crore under PLI till September 2023, Minister of State for Steel, Faggan Singh Kulaste, informed Lok Sabha in early December.
PLI for Food Processing Industry, with an outlay of ₹10,900 crore, is being implemented from FY22 to FY27. The target is four major food segments, promotion of innovative/organic products by SMEs and branding/marketing support to Indian brands abroad. Additionally, government launched PLI for millet-based products in FY23 with an outlay of ₹800 crore. At present, 77 applications are covered under this, Prahlad Singh Patel, Minister of State for Food Processing Industries, said in a written reply in Lok Sabha in August.
PLI Scheme for white goods to encourage manufacturing of air-conditioners and LED light components, to be implemented over FY22 to FY29 with an outlay of ₹6,238 crore, is also taking off. Out of 64 beneficiaries, about 15 have started production, say sources. PLI Scheme for drones and drone components offered a total incentive of ₹120 crore over three years. Ministry of Civil Aviation had selected 12 drone manufacturers and 11 drone component manufacturers by May 2022. PLI for Textiles focuses on manmade fibre (MMF) apparel, MMF fabrics and technical textiles. Sources say 64 beneficiaries have been selected with expected investment of ₹19,798 crore and turnover of ₹1.93 lakh crore.
With many more sectors and industry associations clamouring for PLI in sectors like toys, it is clear that the scheme is seen as a success by a large sections of industry.