The production-linked incentives (PLI) scheme, which seeks to boost manufacturing in key areas by offering nearly Rs 2.4 lakh crore in incentives over the next five years, can add 4 per cent to the GDP annually in terms of incremental revenue, says a report.
So far, the scheme has seen maximum response from the electronics, auto components, and pharma sectors, according to Emkay Investment Managers. The scheme has potential to add nearly 4 per cent to GDP per annum in terms of incremental revenue if fully realised, the report said.
Manufacturing companies are adding capacities due to robust returns and this is evident from the number of new manufacturing companies registered. Registration of manufacturing companies has shot up to the highest ever in the last seven years and the share of manufacturing companies in total registrations is also at almost highest level since the past decade.
Also, the number of environmental clearances sought and granted was the highest ever in FY22, which was 10x of FY15, says the report and credits the same to the structural changes unveiled during 2018-21 which are reminiscent of the many such things that happened prior to the 2003-06 boom cycle.
The report said domestic manufacturing was hit due to demonetisation, badly rolled out GST, and the pandemic apart from the missing consumer demand. As a result manufacturing companies have been reporting dismal ROCEs (return on capital employed) till FY18.
Since then the cash ROCEs have improved and the cash return on capital employed was the highest in FY22. The report goes on to add that the current difference between cash ROCE and comparable investment is one of the highest and the attractiveness of cash returns coupled with better capacity utilization has put manufacturers on the front foot.