Context:
The Government’s flagship PLI scheme to boost domestic manufacturing has been a mixed bag so far.
Answer:
The Production-Linked Incentive (PLI) scheme, launched in 2020, aims to boost domestic manufacturing, reduce import dependency, and integrate India into global supply chains. With an outlay of ₹1.97 lakh crore across 14 sectors, it incentivizes incremental production and targets job creation. The scheme aspires to redefine India’s role in global supply chains by addressing key gaps in manufacturing ecosystems.
Achievements of the PLI Scheme in India:
- Growth in Domestic Manufacturing: The scheme has significantly increased production capacities in sectors like mobile phones, food processing, and pharmaceuticals.
- India became a net exporter of smartphones, with exports worth $15 billion in 2023-24.
- Attracting Investments: The scheme has attracted ₹1.23 lakh crore in private investments till March 2024.
- Major global players like Foxconn, Reliance, and Ola have set up operations under the scheme.
- Job Creation: The scheme has created 5.84 lakh direct jobs, with 75% generated by mobile phones, food processing, and pharmaceuticals.
- Food processing alone created 2.45 lakh jobs, nearly meeting its six-year target in just three years.
- Integration into Global Supply Chains: Initial support to large players has begun to trickle down to ancillary industries, boosting India’s overall manufacturing ecosystem.
- At least 14 of Apple’s suppliers were operational in India by 2023, compared to virtually none before the PLI.
- Export Competitiveness: The scheme has enhanced India’s export competitiveness in key sectors like electronics and pharmaceuticals.
- Pharmaceutical exports grew by over 18% in 2022-23, driven by PLI incentives.
- Sectoral Growth: Telecom and white goods are on track to meet targets, contributing to technological self-reliance.
Limitations of the PLI Scheme in India:
- Uneven Sectoral Progress: While sectors like mobile phones and food processing have performed well, others like textiles, ACC batteries, and solar modules have seen slow progress.
- Textiles created only 12,607 jobs in two years, far below the six-year target of 2.5 lakh jobs.
- Favouring Large Enterprises: Initial benefits have been skewed towards large enterprises, limiting trickle-down effects for MSMEs.
- Mobile manufacturing benefits are concentrated in large companies like Apple and Samsung.
- Dependence on Subsidies: Critics argue that the scheme relies on financial incentives rather than structural reforms, risking competitiveness once incentives are withdrawn.
- Questions have been raised about whether sectors like electronics will remain competitive in the absence of subsidies.
- Infrastructure and Administrative Gaps: Poor infrastructure, shortages of skilled labour, and delays in disbursing incentives hamper progress.
- The specialty steel sector has struggled to meet targets due to infrastructure gaps.
- Delays in Implementation: Pandemic-induced disruptions and gestation periods have delayed the rollout in many sectors.
- ACC battery production is yet to commence.
- Stringent Eligibility Norms: High thresholds deter smaller firms from participating, limiting the scheme’s inclusivity.
Way Forward:
- Strengthen Implementation: Address delays by simplifying eligibility norms and expediting approvals. Enhance coordination between government agencies and stakeholders.
- Focus on MSMEs: Provide tailored incentives and capacity-building support to ensure broader participation across supply chains.
- Sustainable Incentives: Gradually phase out financial subsidies while building structural competitiveness through improved infrastructure and skill development.
- Global Integration: Leverage free trade agreements and diplomatic ties to position India as a key player in global supply chains.
The PLI scheme has undoubtedly positioned India as a strong contender in global supply chains. However, addressing its limitations through adaptive policies and focused execution is essential to maximize its potential and redefine India’s global manufacturing footprint.
‘+1’ Value Addition:
- The PLI schemes have created 36% of the total 16.2 lakh direct jobs targeted over the next five years till June 2024.
- Of the 14 sectors, textiles, solar modules, IT hardware, automobiles, advanced chemical cells (ACC), and specialty steel, are relatively underperforming.
- The idea with PLI schemes – the support for which ranges from three to seven years – is also to get a certain critical mass in a sector, so that when incentives are withdrawn, the sector remains competitive on an export parity basis.
