India Boosts Manufacturing with Production Linked Incentive Scheme

By Suraya Roos

"ACC battery and solar PV manufacturing are showing promise of a rapid 'boom' in the near future."

India’s government announced its ambitious Production Linked Incentive (PLI) scheme for ten key industries in a bid to make India a global manufacturing hub. It will not only serve India but also boost global manufacturing, distribution and trade. “We want manufacturers to come to India,” said Finance Minister Nirmala Sitharaman while briefing the press on November 11 2020. She further added, “We hope that these financial incentives make it attractive to produce in India.”

The huge financial injection is worth USD 26,8 billion over the next five years. It aims to drive investment, and to strengthen ten key sectors:

1. Advance Chemistry Cell (ACC) Battery Manufacturing

Advance Chemistry Cells (ACCs) is a ‘new generation’ battery that can store energy as chemical energy and convert it to electric energy. These batteries can be used in many consumer electronics, electric cars, and other ‘renewable energy’ applications. Global manufacturers are making investments ahead of the predicted increase in battery demand in the future.

2. Electronic/Technology Products

These include semiconductors, displays, laptops, notebooks, servers, specified computer hardware, and Internet of Things (IoT) devices (gadgets that are connected to the Internet and to other devices).

3. Automobile and Auto Components

The biggest share of the PLI scheme is set aside for the car industry. India is the third-largest manufacturer of cars in the Asia-Pacific region after China and Japan, with 3.4 million cars produced in 2020. Yet, India aims to play a bigger part in the global car export market and to decrease its import of car parts.

4. Pharmaceuticals

The pharmaceutical industry in India is the third-largest in the world in volume, but not in value. India has all the resources, the infrastructure, and a network of allied industries for a successful pharmaceutical industry. However, it needs more high-value production. For the PLI scheme, it was divided into three categories:

Category 1:

• Biopharmaceuticals

• Complex generic drugs

• Patented drugs or drugs nearing patent expiry

• Cell-based or gene therapy products

• Orphan drugs

• Special empty capsules

• Complex excipients

Category 2:

• Active Pharma Ingredients (APIs) /Key Starting Materials (KSMs)

• Drug Intermediaries (Dls)

Category 3:

• Repurposed drugs

• Auto-immune drugs, anti-cancer drugs, anti-diabetic drugs, anti Infective drugs, cardiovascular drugs, psychotropic drugs and anti-retroviral drugs

• In-vitro Diagnostic Devices (IVDs)

• Phytopharmaceuticals

• Other drugs not manufactured in India

• Other drugs as approved

5. Telecom Products

India’s telecommunications market with 1.16 billion subscribers is the second largest in the world, and it is still growing. A United Nations (UN) report in 2014 notably calculated that far more people in India have access to a phone than to a toilet, with the number of mobile phones per 100 people far higher than the number of toilets per 100 people. The PLI scheme is geared towards:

• Core transmission equipment

• 4G/5G, next-generation radio access network and wireless equipment

• Access & Customer Premises Equipment (CPE), Internet of Things (IoT) access devices and other wireless equipment

• Enterprise equipment: switches, routers

6. Textiles

One of India’s oldest industries offers jobs to 35 million skilled and unskilled workers. With never decreasing demand, both domestically and abroad, the sector is very robust. The future for the textile industry is secured by PLI incentives reserved for the Man-Made Fibre Segment and Technical Textiles.

7. Food Processing

India’s government claims that the growth of the processed food industry will lead to better prices for farmers and reduce high levels of wastage. Only branches that have growth potential and employ a substantial number of people are selected for the PLI scheme. These include:

• Ready to Eat/Ready to Cook (RTE/ RTC)

• Marine products

• Fruits & vegetables

• Honey

• Desi Ghee

• Mozzarella cheese

• Organic eggs and poultry meat

8. Solar Photovoltaics (PV) manufacturing

These systems, that convert sunlight into electricity, are expected to grow big and fast in the future. India hopes to be a part of the global value chains for solar PV manufacturing, by encouraging domestic and global players to build large-scale solar PV capacity in India.

9. White Goods

A globally competitive production of goods such as air conditioners and LED lights adds value to the domestic market and increases export.

10. Steel Products

Steel has many purposes, and India is the world's second-largest steel producer. It already exports finished steel and wants to add high grades and specialized steel to its export portfolio. PLI incentives include:

• Coated steel

• High strength steel

• Steel rails

• Alloy steel bars & rods

India has already seen good results from its previous PLI scheme for mobile manufacturing, pharmaceutical ingredients and medical devices.

The starting point for many of India’s policies is the principal of Atmanirbhar Bharat, which translates to 'self-reliant India' or 'self-sufficient India'. So, first and foremost, this PLI scheme helps India in many ways. The increase in manufacturing means India will be better able to service its own local markets, and rely less on import. This is the case for white goods, electronics, food products, pharmaceutical products and cars. India’s demand for these goods is increasing steadily. This is also the case for the specialised steel industry and the reason why this sector is included in the scheme. In time, India will even be able to export this commodity, adding more gains for India.

Another effect of the scheme is the creation of jobs. Some of the sectors, such as the textile industry, were selected because they are labour intensive, and will thus create a great number of jobs. Other industries are included for their potential growth, the so-called ‘Sunrise Sectors’. These are the electronic and technology products, ACC battery and solar PV manufacturing, which are all showing promise of a rapid ‘boom’ in the near future.

At the same time, this new financial incentive is a very outward-looking strategy, because it helps to link India into the Global Value Chain (GVC). The GVC trend allows the different stages of the production process to be located across different countries. Traders on the global market can take another look at India for investments, start-ups, and as a location for manufacturing of goods.

Suraya Roos is an intern at M74, and a recent graduate from the Open University of Malaysia, where she received a BA in English Studies. She is also an English teacher. Her passions are languages, cultures and communication.

The views expressed above are those of the author and do not reflect the official position of the M74 Group, which remains neutral on all matters. Publishers assume no liability for content.