- July 5, 2022
- Posted by: admin
- Category: Daily News
- The production-linked incentives (PLI) scheme, which seeks to boost manufacturing in key areas by offering nearly INR2.4tr in incentives over the next five years, can add 4% to the GDP annually in terms of incremental revenue, says a report.
- So far, the scheme has seen maximum response from the electronics, auto components, and pharma sectors, according to Emkay Investment Managers.
- Manufacturing companies are adding capacities due to robust returns and this is evident from the number of new manufacturing companies registered.
- Registration of manufacturing companies has shot up to the highest ever in the last seven years and the share of manufacturing companies in total registrations is also at almost highest level since the past decade.
- Also, the number of environmental clearances sought and granted was the highest ever in FY22, which was 10x of FY15, says the report and credits the same to the structural changes unveiled during 2018-21 which are reminiscent of the many such things that happened prior to the 2003-06 boom cycle.
- The report said that domestic manufacturing was hit due to demonetisation, badly rolled out GST, and the pandemic apart from the missing consumer demand.
- As a result manufacturing companies have been reporting dismal RoCEs (return on capital employed) till FY18. Since then, the cash ROCEs have improved to almost 20% driven by tighter working capital cycles and the cash return on capital employed was the highest in FY22.
- The report goes on to add that the current difference between cash ROCE and comparable investment is one of the highest and the attractiveness of cash returns coupled with better capacity utilization has put manufacturers on the front foot.
- On the demand side, the report notes that the consumer was missing in action since the note-ban which got further weakened by the lopsided implementation of GST, and then the pandemic.
- All these have also crimped jobs by the millions. However, growth in per capita GDP picked up in FY22 and per capita GDP was higher than in FY20 and the discretionary income is likely to rise from in FY23.
- The report also attributes the success of the PLI scheme to the China+1 strategy. The world’s factory is again facing significant pushback after the recent lockdowns in many Chinese cities, which further aggravated supply chain as well as manufacturing disruptions.
- On top of it, many developed countries have imposed anti-dumping duties on lots of Chinese goods.
- Another enabling factor is the rupee depreciation against the Chinese yuan, making India more competitive on the manufacturing front, and the key beneficiaries of these developments are auto and auto components, textiles, chemicals, and capital goods.
External Link : https://economictimes.indiatimes.com/news/economy/policy/pli-scheme-can-add-4-to-gdp-annually-report/articleshow/92679501.cms