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:
|SECTORS||NODAL MINISTRY||OUTLAY||KEY PRODUCTS IN FOCUS|
|AUTOMOBILES & AUTO COMPONENTS||MINISTRY OF HEAVY INDUSTRIES AND PUBLIC ENTERPRISES||₹25,938 CRORES||AUTO COMPONENTS LIKE SHAFTS, GEARS, WIRES, ETCELECTRIC VEHICLES AND THEIR COMPONENTSOTHER ANCILLARY PRODUCTS|
|AVIATION||MINISTRY OF CIVIL AVIATION||₹120 CRORES||DRONESDRONE COMPONENTS|
|CHEMICALS||DEPARTMENT OF HEAVY INDUSTRY, NITI AAYOG||₹18100 CRORES||ADVANCE CHEMISTRY CELL BATTERIES|
|ELECTRONIC SYSTEMS||MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY||₹48276 CRORES||MOBILE PHONESTABLETS LAPTOPS SERVERSSPECIFIED ELECTRONIC COMPONENTS|
|MEDICAL DEVICES||DEPARTMENT OF PHARMACEUTICALS||₹18420 CRORES||BIOMEDICAL IMPLANTSCARDIOLOGICAL IMPLANTSRADIOTHERAPY DEVICESRADIOLOGY DEVICESNUCLEAR IMAGING DEVICES|
|METALS & MINING||MINISTRY OF STEEL||₹6322 CRORES||ELECTRICAL STEELALLOY STEEL AND STEEL WIRESSPECIALTY RAILSHIGH STRENGTH/ WEAR RESISTANT STEEL|
|PHARMACEUTICALS||DEPARTMENT OF PHARMACEUTICALS||₹21940 CRORES||BIOPHARMACEUTICALSCOMPLEX GENERIC DRUGSACTIVE PHARMACEUTICAL INGREDIENTSANTI-CANCER DRUGS|
|RENEWABLE ENERGY||MINISTRY OF NEW AND RENEWABLE ENERGY||₹24000 CRORES||SOLAR PV’S|
|TELECOM||DEPARTMENT OF TELECOMMUNICATIONS||₹12195 CRORES||CORE TRANSMISSION EQUIPMENT4G/5G, NEXT GEN WIRELESS EQUIPMENTSWITCHES, ROUTERSIOT DEVICES AND OTHER WIRELESS EQUIPMENTS|
|TEXTILES & APPARELS||MINISTRY OF TEXTILES||₹10683 CRORES||MAN-MADE FIBERSTECHNICAL TEXTILE PRODUCTS|
|WHITE GOODS||DEPARTMENT OF PROMOTION OF INDUSTRY AND INTERNAL TRADE||₹6238 CRORES||AIR CONDITIONER AND ITS COMPONENTSLED DEVICESFUSES, 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.