Evaluating India's Production-Linked Incentive (PLI) Scheme

What’s in today’s article?

• Why in News?
• What is the PLI Scheme?
• Evaluating Progress, Challenges and Potential of the PLI Scheme
• Conclusion

Why in News?

• While some sectors have shown encouraging results under the Production-Linked Incentive (PLI) scheme, others lag in meeting targets, prompting reviews and potential adjustments.

What is the PLI Scheme?

• About: The PLI scheme was launched (in March, 2020) to boost India’s domestic manufacturing base and enhance its global supply chain contribution.
• Objective: Covering 14 sectors, the scheme aims to create significant employment opportunities and drive industrial capital expenditure (capex).
• How does it work?
  • Under the PLI scheme, eligible companies receive financial incentives based on their incremental sales from products manufactured in India.
  • These incentives encourage companies to invest in upgrading their manufacturing capabilities, adopting modern technologies, and expanding their production capacities.
• How is PLI different from other traditional subsidies?
  • Only limited sectors are eligible: The scheme has the potential to attract maximum investments and scale rapidly to provide the maximum returns in terms of incremental production, employment, and export.
  • Time-bound pre-committed levels of investment and productions: Hence, cannot be called a subsidy scheme.
  • Focus on supporting upcoming technologies: That can be commercialised at a large scale like advanced chemistry cell batteries, electronic and technology products.

Evaluating Progress, Challenges and Potential of the PLI Scheme:

• Mixed progress across sectors:
  • Sectors lagging in employment generation:
    • Textiles, solar modules, IT hardware, automobiles, advanced chemical cells (ACC), and specialty steel have seen relatively slow progress in creating jobs.
    • Initial challenges stem from the need to build domestic manufacturing capabilities from scratch.
  • Successful sectors:
    • Food processing and mobile phone manufacturing have exceeded expectations.
    • For instance, smartphone exports reached $15 billion in 2023-24, driven by companies like Apple expanding assembly operations in India.
• Initial challenges and emerging benefits:
  • Challenges:
    • Developing manufacturing industries from scratch in certain sectors.
    • Stringent eligibility criteria, reliance on imported machinery, and high tariffs have been deterrents.
    • Time-consuming commissioning processes in sectors like solar modules and ACC, which require 1.5–3 years to set up.
  • Emerging benefits:
    • Sectors like mobile manufacturing show a ripple effect, with large companies like Apple spurring ancillary industries and creating opportunities for smaller suppliers.
    • For instance, Apple now sources components from 14 Indian suppliers compared to none prior to the PLI scheme.
  • Economic potential: According to CRISIL, the PLI scheme could drive ₹3-3.5 lakh crore in industrial capital expenditure over its duration, contributing 8–10% of total capex in key sectors over the next 3–4 years.
  • Critical perspectives: Critics argue that the PLI scheme may function as a subsidy without guaranteeing long-term competitiveness once incentives end.
• Way ahead:
  • Sectoral adjustments: IT hardware recently received an upgraded outlay. Renewals or adjustments are under consideration for sectors like textiles and drones.
  • Potential revisions: Revising eligibility criteria and increasing support in underperforming sectors. Emphasising employment-linked outcomes in sectors with slow initial traction.

Conclusion:

• Challenges in underperforming sectors highlight the need for fine-tuning policies to achieve long-term goals of industrial growth, employment, and competitiveness.
• As the government recalibrates the framework, sustained engagement with stakeholders and addressing structural bottlenecks will be key to realising the scheme’s full potential.

Q.1. What is the significance of the Atmanirbhar Bharat Abhiyan for the Indian economy?

The phrase 'Atmanirbhar Bharat' is an umbrella concept for the Government of India's plans for India to play a larger role in the world economy, and for it to become more efficient, competitive and resilient.

Q.2. What is the significance of the 'Make in India' scheme?

"Make in India" initiative has been a cornerstone in transforming India into a global manufacturing hub. With a strong focus on enhancing industrial capabilities, fostering innovation, and creating world-class infrastructure, the initiative aims to position India as a key player in the global economy.

News: Why some PLI schemes are in the slow lane; what govt is doing about it