PLI scheme to enhance India's manufacturing capex: ICRA

The production-linked incentive (PLI) scheme is on track to revive India's manufacturing capex, according to rating agency ICRA.

The government has extended applications for the second round after seeing the encouraging response for a few sectors and has increased (or planning to increase) PLI outlay for some others, says the rating agency.

"The success of the PLI scheme indicates the government is on track to enhance India's manufacturing capex. We see a high probability of the outlay for certain sectors, especially with green initiatives, being expanded. However, in the wake of rising input costs, and government’s anti-inflationary measures, execution delays in certain sectors could be a concern," says Rohit Ahuja, head of research at ICRA.

In renewable energy, the government had raised the outlay for solar PV modules to ₹24,000 crore in the FY23 budget, after seeing an encouraging response in the first round for the ₹4,500 crore scheme.

"Analysing the details of the waitlist from the first round of bidding, it seems the entire ₹24,000 crore PLI outlay would be well covered," the rating agency says.

A similar response was visible in the ACC batteries PLI scheme, where the applications were received for around 110 GWh against the 50 GWh PLI scheme, ICRA says, adding that the government may look at increasing the PLI outlay for this sector, on similar lines as for the solar PV modules PLI, considering the massive interest.

The largest PLI scheme, for semiconductors, has received applications for 80% of the outlay in Round 1, despite an aggressive timeline for submissions.

"Several other sectors, such as pharma, auto, food products, etc. have received positive responses. For a few sectors like AC/LED, the government opened the PLI applications after receiving requests from several entities. Sunrise sectors like drone manufacturing received an encouraging response and attracted enough applications over the 20 days period," says ICRA.

The application submission for the steel sector PLI, was open till May 31, 2022. "Like other PLI schemes, the steel PLI too has been well received by the industry. However, there are requests for modifications to the scheme which the government is working on and has extended the application submission timeline," it adds.

The government's focus on climate goals is visible from the PLI schemes in ACC battery, semiconductors, solar PV modules, the rating firm says. "The government's plan for PLI in electrolyser manufacturing is a step towards climate goals."