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With PLI boost, private capex cycle on cusp of revival, say experts

A report by rating agency Crisil says that industrial investment may rise 30% in the next two years – 2021-22 to 2023-24 – primarily on account of the PLI scheme.

Published: 19th October 2021 08:58 AM  |   Last Updated: 19th October 2021 09:09 AM   |  A+A-

By Express News Service

NEW DELHI:  The private sector investment cycle is all set for recovery as industrial investments are likely to increase going forward owing to the Production linked Incentive (PLI) scheme of the government, according to experts.

A report by rating agency Crisil says that industrial investment may rise 30% in the next two years – 2021-22 to 2023-24 – primarily on account of the PLI scheme. “The PLI scheme has given a much-needed booster dose to flailing capex. Without it, capex would have likely taken nearly two years to touch the pre-pandemic levels. Actualisation of the scheme will result in aggregate industrial capex rising 1.3 times through fiscals 2022-2024 in comparison to fiscals 2018-2020,” says the report.

The Reserve Bank of India (RBI) in its recent monetary policy report has also said that the PLI scheme is nurturing private investment. Under the PLI scheme, the government plans to give a total cash incentive of `1.97 lakh crore across 13 sectors to promote manufacturing in the country. However, PLI is not the only trigger that convinces some experts that private capex would finally take off after years of moderation -- new investment had plunged to a 16-year low in 2020-21, with both private and government investment recording a sharp dip.

As per the Crisil report, accommodative monetary policies and lower interest rates; commodities upcycle, which has benefitted metal and cement players by repairing their balance sheets are some of the other key triggers. According to RBI’s state of the economy report, the broad-based reforms by the government focusing on infrastructure development, asset monetisation, taxation, telecom sector and banking sector should boost investor confidence and facilitate crowding in of private investment.

There are downside risks as well. “While we do believe that India is on the cusp of a private investment boom, especially given that the corporate deleveraging cycle has come to its end, weak domestic demand is the single most important reason why sustainable increase in private capex is multi quarters away,” says Kunal Kundu, India Economist, Societe Generale Corporate and Investment Banking.

The Production linked Incentive (PLI) scheme push

  • Industrial investment may rise 30% in the next two years – 2021-22 to 2023-24
  • The government plans to give a total cash incentive of Rs 1.97 lakh crore across 13 sectors under the scheme
  • RBI recently also said that the PLI scheme is nurturing private investment


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