The Production-Linked Incentive (PLI) schemes launched by the Indian government are set to create a significant impact on the manufacturing sector, potentially generating incremental revenue of $459 billion over the next 5-6 years, according to a recent Goldman Sachs report.
Boosting Manufacturing, Exports, and Employment
The PLI schemes aim to enhance India’s manufacturing capabilities, reduce imports, and drive exports while creating employment across multiple sectors. According to the report, “Over 720 companies could drive incremental revenue of USD 459bn over 5-6 years.”
Energy Transition and Green Initiatives
In the energy transition space, three projects in Advanced Chemistry Cell (ACC) batteries are expected to achieve $24.7 billion in revenue with $2.3 billion in incentives, translating to a 9.2% incentive-to-revenue ratio. The green hydrogen sector is gaining traction with 34 projects supported by $2.2 billion in incentives. Ashoka Buildcon has announced a $1.08 billion investment in this area. Similarly, 14 solar photovoltaic (PV) module projects are set to generate $64.6 billion in revenue with $3 billion in incentives.
Automobile, Electronics, and IT Hardware Leading Growth
The automobile and auto components sector, comprising 95 projects, has already achieved $1.3 billion in incremental sales, backed by $3.2 billion in incentives. Large-scale electronics manufacturing is projected to deliver $130.1 billion in revenue with $4.8 billion in incentives, achieving a 3.7% incentive-to-revenue ratio.
The IT hardware sector is set to generate $24.8 billion in revenue from $2.1 billion in incentives. The telecom and networking products sector has already reported $8.3 billion in sales, including $1.5 billion in exports, following $480 million in investments.
Import Substitution and Domestic Manufacturing
Several sectors are contributing to import substitution and boosting local production. White goods, drug intermediaries, and specialty steel are among the notable performers. In the pharmaceutical sector, $1.9 billion in incentives are expected to generate $24.9 billion in revenue. The textiles sector, supported by $1.3 billion in incentives, is targeting $24.2 billion in revenue.
Food products are projected to generate $15 billion in revenue with $1.4 billion in incentives. The semiconductor sector stands out with $9.5 billion in incentives projected to drive $53.1 billion in revenue.
Challenges and Uneven Growth Across Sectors
Despite the promising outlook, growth under the PLI schemes has been uneven. By August 2024, incremental sales across all sectors stood at $150 billion, with mobile phone manufacturing leading the charge. Sectors such as telecom, pharmaceuticals, and white goods have made substantial progress, while medical devices, textiles, and auto components lag behind.
Government Steps to Refine Implementation
To address these challenges, the government is refining the allocation of funds, expanding the scope of PLIs, and adjusting approval criteria to ensure better incentive disbursement and local value addition.
The Goldman Sachs report highlights that most projects remain in the investment phase, but production is expected to scale up significantly by FY25. This ramp-up is likely to lead to higher incentive disbursements and stronger growth in the coming years.
