Reliance Shares: Reliance Unit Risks India Fine in Rebuke for Ambani’s Empire
A Reckoning for India’s Ambition: Reliance Unit Faces Penalty for Missing Production Target
Reliance Industries Ltd., a unit of billionaire Mukesh Ambani’s business empire, is at risk of being penalized for failing to set up a battery cell plant, a key initiative under Prime Minister Narendra Modi’s plan to reduce India’s reliance on imports. The company, which won a bid to manufacture battery cells in 2022, could face fines of up to 1.25 billion rupees ($14.3 million) for missing a deadline.
Patchy Success: India’s ‘Make in India’ Vision in Jeopardy?
While subsidies to manufacturers under the Production-Linked Incentives (PLI) program have been successful in boosting local assembly of smartphones, the success is not uniform across sectors. Reliance New Energy Ltd., Rajesh Exports Ltd., and other companies that won bids in 2022 to build battery cell plants are facing challenges in meeting their commitments.
Ola Electric’s Progress: A Silver Lining in the Cloud?
Ola Cell Technologies, a subsidiary of Ola Electric Mobility Ltd., is making progress in meeting its commitments under the PLI program. The company started trial production in March last year and plans to begin commercial production of lithium-ion cells in the April-June quarter.
Risky Business: Investments in Cell Manufacturing
Jiayan Shi, a BloombergNEF analyst, considers the investment in cell manufacturing to be "quite risky last year due to global overcapacity and an uncertain trade environment." The capital investment needed to build a gigawatt-hour battery plant is significant, ranging from $60 to $80 million. Moreover, the prices of lithium-ion phosphate (LFP) battery cells have been declining, making imports cheaper than ever.
A Shift in Priorities: Reliance’s Focus on Green Hydrogen
Reliance New Energy has shifted its focus to green hydrogen, a fuel seen as key to a carbon-free future. The company acquired sodium-ion cell maker Faradion in 2021 and Netherlands-based Lithium Werks, including its manufacturing facilities in China, in 2022. However, these investments were relatively small compared to the estimated capital required to build a battery cell plant.
Embattled Ambition: Reliance’s India-Focused Strategy Under Fire
Reliance Industries Ltd. is at the crossroads, facing criticism for its failure to deliver on its India-focused strategy. The company’s shares have been under pressure in recent months, with its market value eroding by billions of dollars. The penalty imposed on Reliance New Energy for missing its production target could have far-reaching consequences for the company and the country’s ‘Make in India’ initiative.
Conclusion: Uncertainty and Distrust in India’s Industrial Policy
The failure of Reliance New Energy to meet its production target raises questions about the efficacy of India’s industrial policy, particularly the PLI program. The country’s mistaken reliance on imports has resulted in a lack of domestic capacity and expertise, making it challenging to achieve its ambitious targets. The uncertainty surrounding domestic demand and the decline in global LFP battery prices have further complicated the situation. As India strives to become a global manufacturing hub, it is crucial for the government to re-evaluate its strategy and provide a more supportive environment for businesses to thrive.
Key Takeaways:
- Reliance Industries Ltd. risks being penalized for missing its production target under the PLI program.
- The failure to set up a battery cell plant reflects the challenges and shifts in the market dynamics that can stymie Prime Minister Narendra Modi’s ‘Make in India’ vision.
- The success of the PLI program is patchy, with Ola Electric’s progress being an exception.
- The high capital investment required to build a battery cell plant and declining LFP battery prices have created uncertainty around domestic demand and the pace of investments in India.
- Reliance New Energy has shifted its focus to green hydrogen, a fuel seen as key to a carbon-free future.
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