In the 21st century, India has already left its mark on the world economy as a leader in IT-related services. This has brought India valuable foreign currency reserves and helped it manage its growth and vision to become a modern nation.
With the shift in the economy over the years, the contribution of the services sector to GDP became the highest. Manufacturing lost its sheen over this period, and Indians became more dependent on other nations for their manufacturing needs. This import surge eventually led to trade balance issues and the depletion of our currency reserves. To tackle the situation, our honourable PM Shri Narendra Modi led the way with Make in India and other schemes to promote the manufacturing sector as a part of the “Aatmanirbhar Bharat” theme. The eventual goal was to make India self-sufficient in its internal consumption and a leader in exports.
To support this vision, our honourable Finance minister Smt. Nirmala Sitharaman announced PLI (Production Linked Incentive) schemes with an outlay of ₹1.97 lakh crores (~$26 bn) for 13 key sectors. The first three PLI Schemes covering Mobile Manufacturing and Specified Electronic Components, Critical Key Starting materials/Drug Intermediaries, and Active Pharmaceutical Ingredients and medical devices were approved earlier in March 2020, and another 10 New PLI Schemes followed these in November 2020.
What is PLI Scheme?
PLI scheme is a recent reform in India’s industrial policy, which is outcome-based and result-oriented, linking incentives to output, and focused on creating ‘champions’ to maximise impact. The scheme offers companies incentives on incremental sales from products manufactured in India. It aims to attract foreign companies to set up units in India while encouraging local companies to expand their manufacturing units, generate more employment, and reduce the country’s reliance on imports. Sectors were chosen based on their ability to cover cutting-edge technology, integrate with global value chains and create large-scale employment.
What are the goals of PLI Scheme?
The goals of scheme were as follows:
- Make domestic manufacturing globally competitive
- To create global champions in manufacturing
- To boost existing capacities in domestic manufacturing for sunrise and strategic sectors
- Curb cheaper imports
- Reduce import bills
- Improve cost competitiveness of domestically manufactured goods
- Enhance export capacity
- Generate employment
What is the sector-wise outlay for these schemes?
The outlay for sectors along with the nodal ministries are as follows:
KEY PRODUCTS IN FOCUS
AUTOMOBILES & AUTO COMPONENTS
MINISTRY OF HEAVY INDUSTRIES AND PUBLIC ENTERPRISES
AUTO COMPONENTS LIKE SHAFTS, GEARS, WIRES, ETC ELECTRIC VEHICLES AND THEIR COMPONENTS OTHER ANCILLARY PRODUCTS
MINISTRY OF CIVIL AVIATION
DRONES DRONE COMPONENTS
DEPARTMENT OF HEAVY INDUSTRY, NITI AAYOG
ADVANCE CHEMISTRY CELL BATTERIES
MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY
MOBILE PHONES TABLETS LAPTOPS SERVERS SPECIFIED ELECTRONIC COMPONENTS
DEPARTMENT OF PHARMACEUTICALS
BIOMEDICAL IMPLANTS CARDIOLOGICAL IMPLANTS RADIOTHERAPY DEVICES RADIOLOGY DEVICES NUCLEAR IMAGING DEVICES
METALS & MINING
MINISTRY OF STEEL
ELECTRICAL STEEL ALLOY STEEL AND STEEL WIRES SPECIALTY RAILS HIGH STRENGTH/ WEAR RESISTANT STEEL
DEPARTMENT OF PHARMACEUTICALS
BIOPHARMACEUTICALS COMPLEX GENERIC DRUGS ACTIVE PHARMACEUTICAL INGREDIENTS ANTI-CANCER DRUGS
MINISTRY OF NEW AND RENEWABLE ENERGY
DEPARTMENT OF TELECOMMUNICATIONS
CORE TRANSMISSION EQUIPMENT 4G/5G, NEXT GEN WIRELESS EQUIPMENT SWITCHES, ROUTERS IOT DEVICES AND OTHER WIRELESS EQUIPMENTS
TEXTILES & APPARELS
MINISTRY OF TEXTILES
MAN-MADE FIBERS TECHNICAL TEXTILE PRODUCTS
DEPARTMENT OF PROMOTION OF INDUSTRY AND INTERNAL TRADE
AIR CONDITIONER AND ITS COMPONENTS LED DEVICES FUSES, RESISTERS, INTEGRATED CIRCUITS
The Curator’s Insight
Views on PLI scheme by Sagar Lele,CFA, founder@Rupeeting & WealthBasket curator
What we are inherently backing in 2023 is anything that is a government-associated play from a policy perspective. So it can be infrastructure, PSU banks, cement, or defence.
In government, I am not talking about general PSUs or PSEs, but all government actions affecting sectors. That’s the theme we would like to play in 2023.
This will include the PLI schemes, but we will assess which companies have how much of a PLI
impact. Sometimes this is important to note because the impact on EPS is insignificant.
Sometimes they are just getting reimbursement for marketing costs, for example.
From a vanity perspective, these companies scream it out and invoke a favourable response amongst novice retail investors, but you need to dig deeper into understanding what benefit they are getting and what the impact is on EPS hence, over what period.More importantly, is participation in the PLI changing the fate of the company by leading to additional opportunities and higher growth? That is the bigger question to answer to play this theme well.
The upcoming budget is likely to be bold and may lay greater focus on boosting domestic manufacturing to capitalise on global supply chain disruptions, import substitution and redistribution of global supply priorities. This would bode well for stocks that can benefit from themes directly associated with domestic manufacturing in the areas of auto components, chemicals, electrical goods, and industrial components which have mostly been covered earlier through PLI schemes. The ethos of the budget is likely to be a pursuit of aggressive spending, with a focus on revival of public and private capex to spur economic growth.
Our “Value Migration” WealthBasket can be used as a proxy to invest in the stocks which may benefit from budget and the PLI scheme. In this WealthBasket we have selected stocks through thorough research which can benefit from government intervention in sectors. The Wealthbasketcan be purchased with a minimum investment amount of ₹50000.