PLI investments falter

Companies have invested over Rs 1.07 trillion in two years through December 2023 under the 14 Production-Linked Incentive (PLI) schemes, or about 40% of the Rs 3 trillion committed.

However, the trend is barely par for the course, with big lags in investments in many sectors such as high-efficiency solar PV modules, automobiles, ACC batteries and textiles that were supposed to lead the pack.

According to official data, of the expected production or incremental sales target of Rs 40 trillion, just 17% has been achie\ved till December 2023. Of the direct employment potential of 1.15 million under the 14 schemes, 43% has been achieved.

Investments by the PLI-eligible firms have to be made in the initial four years to be able to gain maximum incentives. Most of the schemes were rolled out in 2021-22, implying that the investments should have been much higher by now.

Keeping in view India’s vision of becoming ‘Atmanirbhar’ and to enhance India’s manufacturing capabilities and exports, an outlay of nearly Rs 2 trillion was announced in the Union Budget 2021-22 for the PLI schemes. Most of the schemes were announced in 2021, but the implementation is behind schedule in many sectors except electronics (mobile phones) or pharmaceuticals, sectors analysts say would anyway have seen investments in the natural course of business cycle.

A major chunk of investments has come in the manufacturing of pharmaceutical drugs with Rs 25,813 crore or 149% of the projected investments of Rs 17,275 crore by 55 firms.

Firms under the high-efficiency solar PV modules PLI have invested about Rs 22,904 crore, but this is still 21% of the commitment of Rs 1.1 trillion. The lack of an ecosystem in India in the nascent industry is making made-in-India solar modules expensive compared with Chinese producers, an official said, pointing to challenges ahead.

Mobile manufacturing firms have invested about Rs 7,452 crore or 66% of their investment plans. These firms under the large-scale electronics scheme are the early beneficiaries of the PLI incentives released so far.Automobiles and auto components have seen investments of Rs 13,037 crore, about 11% of their commitment of Rs 67,690 crore.

However, investments have been rather slow to come in sectors like automobiles, specialty steel and ACC batteries.
Incentives worth around Rs 2,900 crore have been disbursed in 2022-23 under all PLI schemes and a similar amount may be disbursed in FY24 as well. Even though most firms will be able to claim milestone-based incentives between FY25-FY30, their total claims won’t exceed Rs 1.5 trillion due to various conditions manufacturers have to comply with to be eligible for the sops, officials reckon.

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While some of the schemes are progressing well, others could have also been received well had there been fewer conditionalities and lack of micro-managing, another official said.

According to a recent Crisil report, the process of claiming incentive payouts has encountered challenges such as delayed approval of invoices. Sectors with a higher incentive-to-sales ratio and relatively straightforward rules for payouts, such as mobile handsets, may receive the majority of payouts by fiscal 2028, it said.

“That said, establishing ecosystems in alignment with technical parameters would be crucial for ensuring timely incentive payouts to sectors, without penalties,” Crisil said. The qualification criteria for at least 56% of the incentive payouts across six sectors are relatively stringent, it added.