As Centre extends Rs 1.46 lakh cr PLI Scheme, Morgan Stanley says manufacturing pie in India will increase 3x

Morgan Stanley states that the Cabinet approved PLI for 10 sectors in a bid to further support domestic manufacturing and improve competitiveness. Total allocation under PLI scheme would be Rs 1.46 lakh crore over five years, according to government. Morgan Stanley believes that manufacturing in India is at an inflection point supported by policy measures and transition to a multipolar world.

PLI approved for 10 sectors:

The Cabinet has cleared Production Linked Incentive (PLI) for 10 sectors today wherein sops worth Rs.1.46 trillion will be given over the next five years.

Manufacturing in India to get a push:

The extension of incentives to other sectors through the PLI scheme is expected to give manufacturing in India an impetus by creating a business friendly environment, coupled with other structural reforms including labour, land and tax reforms. Additionally, this initiative is expected to further the fillip to India's Aatmanirbhar Bharat Mission to promote self reliance and augment indigenous manufacturing capacities to make India globally competitive. This in turn is expected to boost exports and increase India's participation in global value chains.

Morgan Stanley’s view:

Morgan Stanley believes that manufacturing in India is at an inflection point driven by favourable policy responses, changing trade scenarios and a transition to a multipolar world. Morgan Stanley estimates that the manufacturing pie will increase 3x in the next 10 years. Morgan Stanley anticipates domestic manufacturing to play a fundamental role in encouraging the MSME sector and generating employment opportunities and consequently unleashing productivity driven growth for India.

Sector-wise Snapshot:

The following is the snapshot of the sectors for which PLI is announced:

1. ACC battery manufacturing: Scheme will incentivize large domestic and international players in establishing a competitive ACC battery set-up in India.
 
2. Electronic / technology products: As per the government, India will be a U.S. $ 1 trn digital economy by 2025. Government's push for data localization, IoT market in India, Smart City and Digital India initiatives will increase demand for electronic products.
 
3. Automobiles components: Scheme will make the Indian auto industry more competitive and enhance globalization.
 
4. Pharmaceuticals drugs: Indian pharma industry is 3rd and 14th largest globally by volume and value, respectively. Indian pharma contributes to 3.5% of total drugs and medicines exported globally. The scheme will incentivize global and domestic players to engage in high value production.
 
5. Telecom and networking products: Telecom equipment is a critical and strategic element of building a secured telecom infra and India aspires to become a major OEM. The scheme is expected to attract investments from global players and help domestic companies seize emerging opportunities.
 
6. Textile products: The Indian textile industry is one of the largest globally with 5% of global exports. India's share in manmade fibre (MMF) is low globally and the scheme will attract large investments to further boost domestic manufacturing, especially in MMF segment and technical textiles.
 
7. Food products: Processed food industry leads to better prices for farmers and reduces wastage. Specific product lines with high growth potential and capabilities to generate employment have been identified for providing support through the PLI scheme.
 
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8. Solar PV modules: Large imports of solar panels pose risks in supply-chain resilience and have strategic security challenges considering the electronic (hackable) nature of the value chain. The scheme will incentivize domestic and global players to build solar PV capacity and help India leapfrog in capturing global value chains for solar PV manufacturing.
 
9. Whitegoods (Air Conditioners LEDs): They have very high potential of domestic value addition and making these products globally competitive. The scheme will lead to more domestic manufacturing, job creation and increased exports.
 
10. Speciality Steel: Steel is a strategically important industry and India is the 2nd largest steel producer globally. India is a net exporter of finished steel and has the potential to become a champion in certain grades of steel. The scheme in specialty steel will help in enhancing manufacturing capabilities for value added steel leading to increase in total exports.