Ahead of next week’s Union budget , speculation over an expansion of the government’s Production linked Incentive (PLI) scheme in running rife. Finance minister Nirmala Sitaraman may either allocate more funds to some of the exciting sectors or extend the incentives to newer areas, or so both , according to various reports quoting unnamed officals.
The Budget may pick out one or two new businesses for PLI from a long list of contenders such as Bicycles , leather and footwear, containers , electrolyser , power transmission equipment, robotics , toys and furniture, among others.
About PLI Scheme
The PLI scheme – which offers incentive or incremental sales of products manufactured in India – was initially rolled out for three sectors in early 2020 and then extended to 11 more. The sectors covered under the government 1.97 trillion package include automobils and auto components, electronics, solar modules, pharmaceuticals , telecom , food products, textiles, white goods and specially steel.
Rise in capital expenditure
With a PLI scheme in place , the annual investment in India’s manufacturing sector may remain high for a few years from FY2023-24. According to a recent analysis by credit rating agency ICRA , the deployment of capital expenditure may kick in a big way in the next fiscal year of 2023-24 ,with investment likely to cross the 1 lakh crore threshold and may touch 1.7 lakh crore in FY 26 . So it is very likely that FM may put the spotlight on the PLI scheme in the upcoming budget and possibly the package it as India’s Covide time success story of Aatmanirbharta (self reliance) . Thanks to the liberal incentives under the PLI , the private sector, which has been otherwise reluctant to spend has started investing some amount in new manufacturing facilities.
The likelihood of recession in some advanced economies is a huge concern. Officials in multiple ministries say on the condition of anonymity that capex deployment in some big PLI projects may get delayed due to global gloom. One third of the world’s economies is projected to be slipping into recession in 2023.
PLI scheme for sectors such as automotive, advanced chemistry cells ( ACC) , air conditioner, Mobile phones etc., have been hugely successful and are oversubscribed sectors. The government may consider increasing the outlay for oversubscribed sectors but what should happen if the outlay in some sectors remain unused because of lack of interest from stakeholders?. The outlay from the unused portion of existing schemes should be diverted to new sectors .