On PLI, the Adani-Ambani race, and India’s rice exports - Issue #21
The Big Picture
Despite a long tail of impacts as consequential as those of demonetisation, the Goods and Services Tax, and the Insolvency and Bankruptcy Code, India’s PLI (Production-Linked Incentive) plan has not seen much discussion.
The scheme seeks to boost India’s manufacturing sector and wants to wrest supply chains from China at a time when much of the world is worrying about its overweening reliance on the country. PLI also intends to reduce India’s reliance on other countries by pushing for self-reliance (indigenisation) of supply chains. In addition, it wants India to entrench India in the industries of the future – semiconductors, polysilicon, advanced chemical cell (ACC) batteries and the like.
To meet these goals, the scheme stands on old and new pillars. India is hiking duties on imported components to coax manufacturers into sourcing locally. To offset inefficiencies of making in India, the government will pay chosen firms a disability cost – the task of addressing the inefficiencies themselves is a more complex problem to crack. The government will groom a few sectoral champions to ensure the country builds scale. For instance, PLI support was given to just three companies in polysilicon and ACC batteries. Apart from these, India wants maximal localisation in value chains. Take batteries. Instead of importing cells and stacking them into battery packs, India wants them to be made locally.
Atmanirbharta
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These pillars come with promise and peril. India tried to boost manufacturing by hiking import duties in the past but ended up with inefficient companies which repeatedly got the government to prolong import duties. What will happen this time around? Even venture capitalists struggle to spot the technological players of tomorrow. Can the government do it? Disability costs will be paid out for five years. Can India address its core inefficiencies in this period? Alternately, can companies become globally competitive in these five years – flourishing even after disability cost payments stop? If not, could the Rs 200,000 crore being pumped into PLI be better used?
Over the last two weeks, CarbonCopy has taken a closer look at these questions. The first part of our series introduced PLI – and the pillars it stands on. The second part looks at the PLIs for solar panels and batteries to study how the scheme is working in practice.
The third part of our series will be out this week.
Do read.
News of the Week
We start with climate news.
2022 has been a rattling year. With a 1.1-degree celsius increase in temperature, the world has seen forest fires, floods and drought this year. This is a sign to come, said a new paper in Science. As Bloomberg reported, “a major scientific reassessment finds that several critical planetary systems are at risk of breaking beyond repair even if nations restrain warming to 1.5°C, the lower threshold stipulated by the Paris Agreement.” At that level, says Science, coral reefs may die off, ice sheets in Greenland and the West Antarctic may melt, and permafrost may abruptly thaw.
There are other impacts like food shocks. Last week, months after it banned wheat exports, India cracked down on rice exports as well. The country “prohibited exports of broken rice and imposed a 20% levy on shipments of unmilled and husked brown varieties,” said Bloomberg. Similar duties have been placed on semi-milled and wholly-milled rice as well. The news is unsurprising. India’s rice planting has shrunk 5.6% this season due to a lack of rainfall in states like Uttar Pradesh, Jharkhand and Bihar.
The decision, however, will result in a spike in global rice prices. India accounts for 40% of global rice shipments – and exports rice to over 150 countries. As Reuters reported, any reduction in its shipments would increase upward pressure on food prices, already rising because of drought, heat waves and Russia's invasion of Ukraine – and fuel further unrest.
Given these developments as the big picture, how did the world’s fight against climate change fare last week? Sembcorp is quitting its thermal power plant business in India to focus on cleaner technologies. Mere months after it hiked domestic gas prices, India set up a new panel to review the pricing formula for locally produced gas. According to union minister V K Singh, India needs to get out of lithium-ion battery technology for electric vehicles at the earliest. Industry players, he said, should focus on newer technologies like hydrogen fuel cells. There is no such clarity, however, in the country’s PLI scheme.
An interesting report in Nikkei (paywalled) says that, despite the world’s push to lure manufacturing chains away from China, the country’s manufacturing dominance is growing, not shrinking.
Adani and Ambani (again) made headlines this week. The RE race between Gautam Adani and Mukesh Ambani continued apace. According to Business Standard, Adani said “his ports-to-power conglomerate will build three Giga factories for manufacturing solar modules, wind turbines, and hydrogen electrolyzers as part of a USD 70 billion investment in clean energy by 2030." We want to, Adani said, become the world’s top renewable energy producer by 2030
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The company is also looking for a new M&A head.
Reliance is not sitting still either. In recent months, the company has made headlines for its astute acquisitions in the RE space. Last week came news about another such acquisition -- the group is picking up 79.4% in a based solar energy software developer SenseHawk for $32 million. Read this ET Prime report for an update on how the race between the two is shaping up.
Elsewhere in the country, CreditSights, the credit rating agency which raised a red flag about Adani’s indebtedness, recanted, saying it had found errors in its calculations for two companies.
Finally, acknowledging reports that high import duties are curbing India’s solar capacity additions, the Indian government might relax its requirement that developers have to buy from local manufacturers.
Climate Long-Reads
Forbes has written on India’s electric vehicle movement -- not on four wheels, but on two and three.
The global drought has raised questions about the utility of building large dams (WSJ).
Watching the world burn – and holding onto hope, a long-read by journalist Marlowe Hood.
How India lost its global steward leadership in environment conservation (thenewsminute).
Book of the Week
The history of life on the planet is an enigma wrapped in a puzzle.
In school, we learnt that DNA is a building block of life. And then, a clutch of books told us that DNA is too finely chiselled a product to have been the initial building block of life. The focus shifted to RNA. And then, another clutch of books told us that RNA too is too finely chiselled a product to have been the initial building block of life. Over the last month, I have been reading biochemist Nick Lane’s The Vital Question: Why is life the way it is on the initial stirrings of life on this planet. I am yet to find a complete answer to my questions, but now I know how the first organic molecules came about.