Aatmanirbhar Bharat and PLI- What are listed manufacturers doing?

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Aatmanirbhar Bharat, we bet that you have heard this countless times. What does it actually mean?

Let’s rewind a little to put some context. When you were little, you required training wheels on your bicycle or someone to hold your bicycle while you learned how to ride. After a while, the training wheels and the support were off and you were independent as you learned how to ride the bike.

Aatmanirbhar Bharat isn’t entirely different, what? Let us explain. India is a developing economy and a lot of technology and goods/services are not produced in India and have to be imported into our country. The tunnel boring machines that are used to dig underneath the city of Dreams – Mumbai is made by a Chinese company, those swanky Oppo, Vivo and OnePlus smartphones are also owned by a single Chinese group called BBK Electronics, our THAAD missile systems, missiles, few tanks, and Aircraft carriers were bought from Russia. So we see that there are many things where India doesn’t specialize in and it has to rely on imports to make up that technical know-how expertise shortfall.

Think of it as going to a Gym Instructor for getting fit, going to a real estate broker for a new flat, and going to a financial adviser for financial advice. But what if a person had all the qualities of these people? He would have no need to go to others and pay them.

Every coin has 2 sides. We highlighted above how India didn’t have the know-how in some areas but let’s get to the areas where India specializes – IT outsourcing, exports of other goods such as Mineral Fuels, Gems/Precious Metals (Surat is the world’s largest polisher of Diamonds), Organic Chemicals, Vehicles, Pharmaceuticals, Clothing and Iron/Steel. The value of India export was around US$ 356.96 billion in April-November 2019.

Now that we have touched upon both sides of the stories, let’s get back to our topic. India wants to get Aatmanirbhar not only to save money but to generate more employment, garner the know-how for more industries and as and when the segment is mastered, India can target exports in that. Our country realizes that we have a high demographic advantage and if that is not used properly that same advantage can turn into a disadvantage and be disastrous.

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12 million people are being added to the working-age population annually, but not enough job opportunities are generated and hence it requires quick and effective short-term, medium-term, and long-term policy interventions. While the working-age population in India has been growing since the early 2000s, it is in 2018 that the number of people in the age bracket of 15-65 became larger than the number of people in the dependent age group (below 14 and above 65 years of age). This working-age population that is larger than the dependent age population is expected to remain till 2055. (Taken from a news article)

This clearly shows the time is ticking and India has to generate more employment for its youth and uplift them because only when they are uplifted, the country gets uplifted. And Aatmanirbhar Bharat fits the bill perfectly to kick start the economy and create more employment.

Now we have heard about it a lot. So what is happening on the ground?

Let us talk first about PLI – The Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including mobile phones, electronic components, and ATMP units.

According to the Ministry of Electronics and Information Technology (MeITY), “The domestic electronics hardware manufacturing sector faces a lack of a level playing field vis-à-vis competing nations. The sector suffers a disability of around 8.5% to 11% on account of lack of adequate infrastructure, domestic supply chain and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development.

Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing notified vide Gazette Notification No.CG-DL-E-01042020-218990 dated April 01, 2020, offers a production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units. The Scheme would tremendously boost the electronics manufacturing landscape and establish India at the global level in the electronics sector.

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The scheme shall extend an incentive of 4% to 6% on incremental sales (over the base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years subsequent to the base year as defined.

The Scheme is open for applications for a period of 4 months initially which may be extended. Support under the Scheme shall be provided for a period of five (5) years subsequent to the base year.” More FAQs on this scheme can be found here.

Now over here we can see the sectors that were selected to reduce imports and promote local manufacturing. The sectors are as follows – (Taken from MeiTY Site)

What is happening on the ground but? What are companies saying about PLI and what are they doing? We have compiled the Q1FY21 commentary of 3 manufacturers – Amber, Blue Star, and Dixon.

Blue Star Commentary (OEM)

India doesn’t have the know-how for compressors and drives – If there is an Indian manufacturer, Blue star will not mind buying from there. If Chinese companies set up in India that is also fine. Can’t pinch customers’ pockets and call it ‘Make in India.’

PLI Scheme – No incentives for IDU ( Indoor Unit). No plans for manufacturing now, not even compressors.

Dixon Technologies Commentary (Mobiles, Set-top box, lights, surveillance, washing machines)

Policy schemes announced for domestic mobile manufacturing. Dixon has filed 2 applications, 7 applicants totally and 5 will be selected. Dixon is confident that they may win this. For this, they will invest. PLI Schemes – Budget of 42000 cr spread for 5 domestic companies and 5 overseas companies. Dixon has acquired adequate bandwidth to execute PLI projects. If approvals received, PLI benefits will flow in. Dixon is investing seriously in PLI schemes.

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Amber Enterprises (RACs, components, refrigeration, non-ac components)

30% of finished RACs has been imported in India in FY19, Value-wise Rs 4200-4500 cr and equivalent components including compressors were imported. This value is expected to multiply to Rs 8400-11200 Cr (2-2.5x) by FY25. To reduce this 12 champion sectors have been selected, out of which AC is one sector.

Implementations of PMP (phased manufacturing plan) of ACs – Import duties will be hiked over the phase of over 5 years, also introduce production linked incentives for RAC. Active movement is happening. They expect this to help them to strengthen foothold.

The compressor ecosystem has started building up in India. Highly and GMCC (largest compressor manufacturer of the world, will start by end of this year with a capacity of 1.5 million that can be taken up to 6 million) are there in India. Japanese players also coming up. Compressors will start manufacturing in India in these 1-2 years. After these 3 players get online, 70-80% of compressor demand will be met in India.

While all these 3 manufacturers seem to be taking steps towards PLI by making applications and Capital expenditures, only the midterm future will tell us if this scheme bears fruits and actually promotes more local manufacturing and less forex outgo.

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JST Investments

JST Investments

JST Investments is a Mumbai-based investment firm that believes in long-term wealth creation. It's a brainchild of Aditya Kondawar, Aditya Shah, and Anish Moonka.
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