Govt looks to net $30 billion in fresh funds through PLI scheme

The government is banking on its Production Linked Incentive (PLI) scheme to kick off substantial fresh investments to make up for the rock bottom levels seen during the pandemic.

Thirteen PLI schemes are already off the ground based on commitments made by eligible players. The government expects them to bring in incremental investments of around $30 billion by FY25.

Jefferies, which has undertaken a yearly breakup of the investment based on Commerce Ministry data, says that in the first two years of FY22 and FY23, the PLI scheme will bring in around $10 billion of fresh investments.

In the starting year (FY22), the flow will be minimal, around $2 billion. Experts say the reason is that most of the big PLI schemes where eligible players have been selected or are in the process of being finalized, have already lost a large part of their first  financial year (2021-22 ) due to the second wave and fear of another wave.

Besides, many of them will put in fresh investments mostly from FY2022. The rest of the investments will fructify in FY24 and FY24.

In the steel sector, based on company announcements, the big companies plan to spend nearly 2.5 x on capex between FY22 to FY24 compared to the previous three years with over Rs 78,000 crore of fresh investments.

The government itself is expecting investments of Rs 40,000 crore in speciality steel through the PLI scheme for which it has earmarked an outlay of Rs 6,322 crore as incentives.

There are also other high-tech areas outside the PLI where investments have been lined up such as data centres. Real estate consultancy JLL India points out that companies have already committed $3 billion till 2023 to double the capacity to 1 GW, especially given the acceleration that the pandemic has given digitization, along with the impending roll out of 5G services.

Capacity utilization is a key barometer on which companies decide on fresh investment and expansion of capacity was adversely impacted by the second wave.

But the good news is that capacity levels are inching back to pre-covid times. According to a FICCI-Jefferies assessment, the average capacity level in industries cutting across automobiles, capital goods, cement, chemicals and fertilisers, metal and metal products and textiles stood at 73 per cent pre-pandemic in December 2019, rose to 76 per cent in December 2020 and then fell after the second wave to 72 per cent in the quarter of June 2021.

However, in many sectors such as automotive, capital goods and cement, the average capacity utilisation has already gone above pre-covid December 2019 levels.

The big fall was seen in consumer durables and electronics where capacity utilization fell from 85 per cent pre-second wave to 60 per cent this June. A large part of the fall was due to the shortage of semiconductor chips.

Clearly, the big ticket items in which incremental new investment is expected to come up though the PLI scheme include automobiles and auto components (Rs 42,000 crore), advanced chemistry cells (Rs 45,000 crore), pharma drugs (Rs 15,000 crore), and solar PV (Rs 17,200 crore).          

According to estimates by Jefferies and Commerce Ministry data, investment in PLI schemes, together with investment in data centres, should add somewhere between $10-15 billion in annual fresh investments in the next few years.