Fri. Mar 29th, 2024
picture credits- Zee business

The production-linked incentive (PLI) scheme, ambitiously initiated by Narendra Modi government, that seeks to push domestic manufacturing in select strategic sectors has the potential to generate humongous additional revenue worth Rs 35-40 trillion over the next five years, a report stated.

The PLI scheme is offering incentives and subsidies of over Rs 1.8 lakh crore to manufacturers to invest in local manufacturing and to increase production and to additionally attract foreign investments in India to convert the Indian market into an investment hub.

The scheme was strategically announced at the peak of the pandemic-driven lockdown to attract investors leaving China due to its Covid 19 handling controversy.

picture credit- twitter india

During the initial months of firms moving out of China, Vietnam enjoyed the advantages of an integrated supply chain, stable exchange rates and low corporate rates to attract the firms from China.

This certain strategy is now being adopted by India which now wants to convert Indian economy into a strategic hub of investments by connecting strategic sectors across the economy for an integrated supply chain system. The PLI aims to incentivize select strategic sectors to expand investment and to attract foreign direct investment in India.

According to an analysis by Crisil, most of the new manufacturing should begin over the next 24-30 months that can attract Rs 2-2.7 lakh crore of Capital expenditure. The PLI scheme also aims to attract investors in the sectors where it is arduous for local manufacturers to set their foot.

Thus, the capital expenditure will also witness the incentive-to-Capex ratio to be particularly be more attractive, at around 3.5 times for mobile phones, electronics, telecom equipment, and IT hardware where the local manufacturing base is relatively low.

picture credits- Incentiva

According to Ashu Suyash, managing director and chief executive of Crisil, the PLI scheme will be one of the key growth drivers of the economy next fiscal along with government spending on key infrastructure and its growth-oriented spending on capital formation.

The report also positively projects Capex to jump 45-50% in industrial investments alone in fiscal 2022. The capital investment in the economy for the current fiscal year fell by 35% and after this it is projected that it will moderate to 7% through fiscal 2025.

This will have a constructive impact on the banking sector as the credit demand will be seen growing by 400-500 basis points.

This will reduce the discrepancy between the Indian monetary and fiscal administration as the accommodative stance of the RBI will bode well for the investors in the economy, who in turn will drive the economic growth and employment , returning the purchasing power to the consumers amidst burgeoning inflation.

Bank credit growth had contracted by 0.8% in the first half of the fiscal due to all time low demand in the economy, it had recovered sharply in the third quarter by growing 3 % sequentially as the consumer sentiment in India turned positive due to pent up demand and festive season.

In the fourth quarter, too, it is projected to grow by 3%. Overall, bank credit so far this year is growing under 5%.

With revised positive estimates about India’s GDP growth, investor’s confidence in Indian markets is all set to soar. Recently, Moody’s estimates of 13.7% growth in the coming fiscal coupled with 11.5% growth projection by IMF will incentivize humungous FDI flows in India.

Thus PLI scheme in addition to growth-oriented budget, positive investors’ confidence and flattening Covid 19 positivity plateau clearly projects India’s journey on the road to revival and it reclaiming the title of the fastest growing economy in the world in the near future.

By Shivani Khanna

A woman who believes in equal rights and aspires to inspire people through her writings. I aspire to contribute to the economic world and society with diligence and thus being an economic advisor tops my career ambitions . I currently am pursuing Economic honours ( at undergrad level) from delhi university.