PLI plan might boost GDP by 4% annually

6 Jul 2022 , 10:15 AM

According to research, the production-linked incentives (PLI) plan, which aims to increase manufacturing in strategic regions by paying over Rs 2.4 lakh crore in incentives over the next five years, can generate additional income that can add 4% annually to the GDP. According to Emkay Investment Managers, the initiative has thus far had the best response from the electronics, auto components, and pharmaceutical industries.

According to the analysis presented on Tuesday, the PLI plan has the potential to generate additional money that, if fully realized, would increase GDP by around 4% annually. The number of new manufacturing businesses registered shows that manufacturers are expanding their capacity as a result of strong returns.

Manufacturing company registrations have increased to their greatest level in the last seven years, and their percentage of all registrations has nearly reached its highest level in the previous ten years.

As per the report, the number of environmental clearances requested and granted in FY22 was the highest ever, and it was 10 times higher than in FY15. The report attributes this to the structural changes made during 2018—21, which are similar to many of the events that took place prior to the 2003—06 boom cycle.

In addition to the lack of consumer demand, the research claimed that the demonetization, the poorly implemented GST, and the pandemic all negatively impacted local production. As a result, up to FY18, manufacturing enterprises were reporting poor RoCEs (return on capital employed).

Since then, tighter working capital cycles have boosted the cash ROCEs to over 20%, and FY22 had the greatest cash return on capital employed.

The paper continues by stating that the present gap between cash ROCE and similar investments is one of the largest and that manufacturers are now in a stronger position due to the attractiveness of cash returns and improved capacity utilization.