GS2/GS3 Paper
Syllabus: Government Policies & Interventions
Source: PIB
Context: The Production Linked Incentive (PLI) schemes in India have had a positive impact on production, employment generation, economic growth, and exports.
About PLI Scheme:
In the PLI Scheme, companies receive financial incentives or rewards based on their production and sales. For example, if a company makes more smartphones in India, they can earn a bonus from the government. This encourages companies to increase production, create jobs, and boost the country’s economy.
| Aspect | Details |
| Objective | Scale up domestic manufacturing capability, increase import substitution, and generate employment. |
| Initial Targeted Industries | Mobile and allied Component Manufacturing, Electrical Component Manufacturing, and Medical Devices. Now expanded to Automobile and auto components, Electronics and IT hardware, Telecom, Pharmaceuticals, Solar modules, Metals and mining, Textiles and apparel, White goods, Drones, Advanced chemistry cell batteries, and other sectors as well. |
| Incentives | Calculated based on incremental sales. Range from 1% to 20% depending on the industry. |
| Additional Incentives | In some sectors such as advanced chemistry cell batteries, textile products, and the drone industry, the incentive is based on sales, performance, and local value addition achieved over a period of five years. |
The success of the PLI Scheme (data from the Department for Promotion of Industry and Internal Trade (DPIIT)):
| Key Highlights of PLI Schemes | Details |
| Increase in FDI | 76% increase in FDI in the Manufacturing sector in FY 2021-22 compared to the previous year; Drugs and Pharmaceuticals (+46%), Food Processing Industries (+26%) and Medical Appliances (+91%). |
| Value addition | 20% value addition achieved in mobile manufacturing within a period of 3 years |
| India’s exports basket | PLI Schemes have transformed India’s export basket from traditional commodities to high-value-added products. Exports boosted by Rs 2.56 Lakh Crore till FY 2022-23 |
| Investment | 733 applications approved to date in 14 sectors with an expected investment of Rs. 3.65 Lakh Crore. Rs. 62,500 Crore investment realized till March 2023, resulting in employment generation of around 3,25,000 |
| Indian farmers and MSMEs in the food processing sector | PLI Scheme for Food Processing positively had a positive impact on the income of Indian farmers and MSMEs |
| Import substitution | Import substitution of 60% achieved in the Telecom sector, making India self-reliant in Antennae, GPON, and CPE |
| Growth in the drones sector | Drones sector turnover has seen a 7 times jump due to the PLI Scheme |
| Reduction in imports | Significant reduction in imports of raw materials in the Pharma sector, transfer of technology in the manufacturing of Medical Devices |
Challenges associated with the scheme:
| Challenges | Examples |
| Lack of clarity | In the electric auto industry, firms are looking for clarity on the incentives they are supposed to receive. In 2022-23, incentives could not be disbursed because no auto company presented the required documents. |
| Lack of disbursements | In 2022-23, the government paid Rs. 2,874 crore to beneficiaries against a claim of Rs. 3,420 crore in various sectors. |
| Insufficient investment | The low disbursement of incentives suggests that the PLI scheme may not have resulted in the expected level of investment. 6 of the 14 sectors including textiles, solar PV modules, and advanced chemistry cell (ACC) batteries are lagging. |
| Affects competition | The state’s decision to select champions and provide fiscal incentives could affect competition in the targeted sectors. |
| Documentation issues | Without the required documents, incentives cannot be disbursed to the eligible companies. |
| Limited outgo of allocated funds | The actual disbursement of funds has been significantly lower than the allocated budget for the scheme. |
Conclusion:
Policymakers should not excessively depend on the PLI scheme. It is not a way out of the inadequacies in the manufacturing sector. Modern manufacturing depends on complex supply chains and giving fiscal incentives to one set of producers may not work. So, the government will have to work on improving the overall industrial environment.
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