August 2024
In a recent report, ICRA highlights a significant lag in the utilization of the Government of India’s (GoI) incentive schemes, with only an estimated 11% of the allocated outlay expected to be utilized by the end of FY2025. The report sheds light on the challenges and progress related to the Production-Linked Incentive (PLI) and Design-Linked Incentive (DLI) schemes, which were introduced to enhance India's manufacturing and export sectors.
Capex Deployment and Utilization
The GoI has set ambitious targets with an expected capex of approximately Rs. 4 trillion under these schemes. As of May 2024, corporates have invested around Rs. 1.28 trillion, accounting for 30-35% of the total estimated capex. However, the report notes that major sectors, such as solar PV modules, auto, and steel, have yet to begin commercial production due to their extended gestation periods.
The slow pace of progress is attributed to the long lead times required for these sectors to become operational, despite the substantial investments already made. The report predicts that only ~Rs. 326 billion, or about 11% of the total outlay, will be utilized by the end of FY2025, according to current Budget Estimates (BE).
Sector-Specific Insights
The incentive scheme has shown visible results in sectors like pharmaceuticals, mobile phones, and food products, where incentive disbursements have positively impacted manufacturing growth. In contrast, sectors with higher capital demands, such as solar PV modules and steel, have seen minimal disbursements. The delay in disbursements for these sectors is largely due to their high capital requirements and longer timeframes to initiate commercial operations.
Incremental Sales and Production
ICRA's analysis reveals that the current capex deployment has led to incremental sales of approximately Rs. 10.8 trillion, which constitutes 25-30% of the total anticipated incremental sales of Rs. 35-40 trillion from the incentive schemes. This figure underscores the partial but significant impact of the schemes on the targeted sectors.
Future Directions
To address the slow progress and maximize the utilization of the allocated outlay, the GoI is planning to introduce additional incentive schemes targeting new sectors such as toys, leather, and footwear. These new schemes aim to attract anchor investors and enhance the overall effectiveness of the incentive program.
Contacts for Further Information
For detailed insights and further inquiries, the following contacts at ICRA are available:
Business Development/Media Contacts:
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