The bulk of the production-linked incentive (PLI) capex that companies have to put in will be concentrated between FY24 and FY26 as most of the major sectors start manufacturing activities from FY24 onwards, according to a report by ratings firm ICRA.

The rating agency says that over the past couple of years, the PLI schemes have had encouraging bids across sectors, but the deployment of capex is expected to pick up only in FY24 for more than 80% of the invested projects such as semiconductors.

Rohit Ahuja, head of research and outreach at ICRA, says, “Based on our calculations, the annual CAPEX from the PLI schemes are expected to cross ₹1 trillion from FY24 and may peak out at ₹1.7 trillion in FY26. Hence, FY24 could be an inflexion point for a surge in India’s manufacturing CAPEX.”

Notably, in March 2020, the Indian government announced the PLI schemes across 14 sectors including automobiles, auto components and electronics amongst others at an outlay of ₹1.97 lakh crore, under the ‘Aatmanirbhar’ Bharat mission. Moreover, the government is planning to extend PLI schemes worth ₹35,000 crore to different sectors such as containers, electrolysers, power transmission equipment, etc.) to ensure manufacturing CAPEX continues to remain elevated beyond FY26.

“However, in the wake of rising input costs, and unfavourable economic conditions, execution delays in certain sectors could be a concern,” Ahuja says.

According to the report, semiconductor and ACC batteries constituted approximately 70% of the major pending CAPEX deployment. The domestic semiconductor and electronics sector is expected to grow at a compound annual growth rate (CAGR) of 30% to 35% for the next five years.

“Regulations by the US to limit exports of semiconductor and chip-making equipment to China will benefit India in the future. Five applicants under the semiconductor and display fabrication PLI scheme are expected to manufacture approximately 1.2 lakh wafers per month,” the report says.

“The government has set up the India Semiconductor Mission to support applicant entities. ACC batteriesPLI scheme has been approved by three entities. The government may increase the PLI outlay for the same (as done for the solar module), witnessing additional 40 GWh capacity applications in initial bidding,” it adds.

Meanwhile, India’s manufacturing sector purchasing managers index (PMI) gained some momentum to 55.3 in October as against 55.1 in September. This is the 16th time that the manufacturing PMI in the country has remained above the 50-mark.

The development comes at a time when the country’s retail inflation fell to a three-month low at 6.77% in October, down from 7.41% in September 2022. However, it continues to remain above the Reserve Bank of India’s (RBI) upper tolerance band of 6% for the 10th consecutive month.

PLI CAPEX

PLI capex deployment expected to pick up pace in 2024: ICRA