Analysis of Investments and Outcomes Under India’s PLI Schemes Till November 2023 and Implications
Analysis for Layman
The Indian government has reported that various Production Linked Incentive (PLI) schemes have attracted investments totaling over ₹95,000 crore as of November 2023. PLI schemes offer financial incentives to companies for manufacturing specific products in India. Let’s break down some key highlights:
- 746 PLI applications have been approved, with manufacturing units established in 150+ districts across 24 states.
- These schemes have enabled production and sales worth ₹7.8 lakh crore.
- Over 640,000 jobs have been generated.
- Exports have received a boost of ₹3.2 lakh crore.
- Incentives amounting to over ₹2,900 crore were disbursed in FY23.
- Imports of raw materials for pharmaceuticals and electronic components have been reduced.
For context, PLI schemes have been launched in 14 key sectors since 2020 to encourage domestic production, boost exports, and make India self-reliant in industries such as pharmaceuticals, medical devices, electronics, and more. This update highlights the positive outcomes aligning with these objectives.
Impact on Retail Investors
For retail investors, the success of PLI schemes validates the long-term potential for companies participating in these incentives, such as Dixon, Amber Enterprises (appliances), and API producers. Being eligible for PLI allows these companies to expand their capabilities, fuel growth, and become more competitive in export markets.
The wider positive impact of these schemes on India’s electronics, pharmaceuticals, and API (Active Pharmaceutical Ingredient) output also benefits companies like Infosys, HCL Tech, Syngene, Divi’s Labs, and others by discouraging imports of IT hardware, drugs, and electronic components.
Furthermore, the report of fresh investments being on track despite global challenges highlights optimism in India’s consumption growth prospects, which is a positive sign for stocks in sectors like automotive and consumer durables. Therefore, PLI progress indicates structural support for both domestic and export-oriented sectors.
Impact on Industries
The ₹95,000 crore of fresh investments into PLI units is particularly positive for manufacturing industries, especially those benefiting from schemes like electronics, mobile phones, medical devices, drug manufacturing, and textiles, as they see increased commitments. For example, white goods manufacturers have already invested ₹2,084 crore under the PLI scheme, which is 64% over the set targets.
The positive effects ripple through related sectors as well. India’s achievement of self-sufficiency in telecom equipment, for instance, supports the progress of Digital India through the faster rollout of communication infrastructure by companies like Tejas Networks.
Upstream suppliers of components and raw materials also benefit. The report highlights a significant reduction in imported inputs for the pharmaceutical industry. Improved domestic sourcing positively affects industries related to packaging, APIs (Active Pharmaceutical Ingredients), excipients, and other input goods.
In the long run, such output-linked schemes reshape entire supply chains, making them more self-reliant and efficient.
Long Term Benefits & Negatives
In the long term, PLI schemes can nurture globally competitive Indian manufacturing leaders across various industries, focused on quality and scale. This encourages confidence in products labeled ‘Made in India’. Increased domestic value addition creates multiplier effects, contributing to job creation and skill development.
However, it’s important to be cautious of potential negatives, such as global uncertainties that may unfold over the next few quarters, especially in export-oriented sectors.
Short Term Benefits & Negatives
Currently, there are no significant negatives given the demonstrated momentum of the PLI schemes. However, it’s important to be guardedly optimistic, considering global uncertainties that may impact export-focused industries in the short term.
Companies Impacted by PLI Scheme Progress
The positive progress of the Production-Linked Incentive (PLI) scheme could have both positive and negative implications for various companies:
Indian Companies Likely to Gain:
- Electronics Manufacturers:
- Bharti Airtel: Increased domestic production of telecom equipment under PLI could benefit their network infrastructure expansion.
- Jabil India: A major electronics contract manufacturer, expected to benefit from increased demand for domestic electronics assembly.
- Dixon Technologies: Another leading contract manufacturer, well-positioned to gain from PLI-driven electronics production growth.
- Pharmaceutical Companies:
- Cipla Ltd.: Increased focus on domestic production of raw materials could benefit their cost structure and supply chain resilience.
- Dr. Reddy’s Laboratories Ltd.: Their focus on API manufacturing and technology collaborations aligns well with PLI goals.
- Sun Pharmaceutical Industries Ltd.: A diversified pharma player with potential to benefit from reduced reliance on imports.
- Other PLI Beneficiaries:
- Tata Motors Ltd.: PLI scheme for automobiles could boost their domestic production and competitiveness.
- Havells India Ltd.: Increased demand for white goods due to PLI could benefit appliance manufacturers like Havells.
- Godrej Agrovet Ltd.: The PLI scheme for agrochemicals could boost their domestic production and market share.
Indian Companies that may Lose:
- Importers of Electronics and Components: Reduced reliance on imports due to PLI could pose challenges for companies like:
- Redington (India) Ltd.: A major distributor of IT hardware and electronics.
- Excel Datacom Pvt. Ltd.: A distributor of networking equipment and components.
- Traditional Manufacturers in PLI Sectors: Companies not benefiting from PLI incentives might face increased competition from PLI-backed players.
Global Companies that may Gain:
- Technology Providers: Global companies with expertise in automation, AI, and advanced manufacturing processes could find opportunities to collaborate with Indian PLI beneficiaries.
- Investors: Increased investment in India due to PLI’s success could attract global investors to Indian equities and infrastructure projects.
Global Companies that may Lose:
- Foreign Manufacturers Facing Stiff Competition: Increased domestic production due to PLI could make it harder for foreign companies to compete in the Indian market.
- Importers of Goods Covered by PLI Schemes: Reduced import demand for specific goods due to PLI could negatively impact companies reliant on such imports.
Market Sentiment:
- The news of PLI’s positive impact could boost sentiment towards Indian manufacturing companies and sectors like electronics, pharma, and automobiles.
- Companies actively involved in PLI schemes and demonstrating strong performance could see their stock prices rise.
- However, investors should also consider potential risks like competition and policy changes in the long term.
This is an analysis based on the provided information. The actual impact on individual companies and the market will depend on various factors beyond the scope of this article.
Source Citation:
ET Bureau, “PLIs Brought in Investments of ₹95,000 cr till Nov: DPIIT”, ET Bureau, Dec 27, 2023.