India Inc to press the pedal on fresh investments with PLI, say experts

CEOs say worst is behind and they're re-evaluating plans as capacity utilisation is increasing

With the worst now behind, the Indian economy is on the cusp of a take-off with production-linked incentives (PLI) announced by the Centre giving several financial incentives to companies to invest in expanding capacities, chief executives said.

Speaking at the State Bank of India (SBI) Banking & Economic Conclave 2021, CEOs said they are re-evaluating their investment plans as capacity utilisation picks up pace. “We are seeing some movement in corporates. The present capacity utilisation in the economy is 60 per cent and once it moves to 65-70 per cent, then fresh investment will come up,” said Dinesh Khara, chairman of SBI.

“We are expecting additional capacity to come by the end of the current fiscal or in the first quarter of next financial year,” said Khara.

The CEOs agreed. “We think the worst is now behind us,” said Anish Shah, managing director and CEO of auto major Mahindra & Mahindra. “We have seen demand recovery across segments,” Shah said. However, Shah pointed out that supply chain disruptions remain a concern.

He added that there will be a lot investment from the company. “At Mahindra, we are putting in more capacities for tractors. The demand for automobiles is robust but it will be tempered by supply-related issues,” said Shah.

“There’s a huge demand and supply mismatch for semiconductors and it would continue to play out over the next few months,” Shah said. The PLI is a big step forward, Shah said.

Sanjiv Mehta, chairman and managing director of Hindustan Unilever (HUL), said the PLI scheme has helped corporates to invest. “It will give a fillip to manufacturing and very importantly, it’s well into industry to create competitive advantage when it comes to exports,” Mehta said.

“We have to accept that India will have to be competitive on cost, quality, service and innovation, if we have to really work the value chain. And even if we can meet the global norms of cost, quality and service, even to develop a brand outside requires a lot of excellence, a lot of money,” Mehta said.

On the problems faced by the Indian small and medium enterprises (SME) sector, CEOs said they are playing an important role in the economy and unless credit percolates down to the sector, the economy will take time to recover. “I don’t know whether India’s economy will grow due to PLI or not, but it will certainly not reach that target without the participation of the small and medium-sized companies,” said Hitendra Dave, HSBC India CEO.

On fintech firms collaborating with banks, Kunal Shah, founder of Cred, said: “The majority of tech start-ups are creating new platforms. Banks and fintechs are collaborating with increasing frequency.”

Nadir Godrej, MD of Godrej Industries, said the company is planning to invest in agrochemicals and other high technology sectors after the Covid-19 disruption. “We are working with start-ups and we have already invested a lot in innovation for our companies. I entirely agree that innovation is very, very important for India. And we will spend much on R&D and on capacities,” said Godrej. He added, “We will engage in start-ups, particularly in agriculture.”

Vellayan Subbiah, chairman of Cholamandam Investment and Finance, said there is a lot of “white space” where Indian companies can invest. “There are so many sectors where investment is required and the market is waiting to be tapped,” said Subbiah. “We are planning to invest in electronics, medical devices, and renewables as we think these sectors have a lot of potential,” Subbiah said.

“We don’t have a single semiconductor fabrication facility in India. We need an ecosystem around a fabrication unit,” Subbiah added.

On female participation in the workforce, Kunal Shah said that it had dropped by 6 per cent in rural and urban areas, and he added that 92 per cent of all loans in India are still taken by men.  “That number (of women’s participation in the workforce) is not improving, as the data is saying, while we may do our little measures here and there, I think we need to move away from tokenism and get into some real action.”

He added that, “I don’t think we will get to a $5-trillion economy without female participation increasing dramatically.”