Production Linked Incentive Scheme

Context:

Recently, a debate has emerged over the effectiveness of India’s Production-Linked Incentive (PLI), an Electronics Manufacturing scheme, suggesting it generates import-dependent assembly jobs rather than fostering Self-Sufficiency in manufacturing and economic growth.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Promoting Domestic Manufacturing: The Production Linked Incentive Scheme (PLI)
2. Challenges and Concerns Surrounding the PLI Scheme

Promoting Domestic Manufacturing: The Production Linked Incentive Scheme (PLI)

• The Production Linked Incentive (PLI) scheme was devised to bolster domestic manufacturing capacity, foster import substitution, and drive employment generation.
• Initiated in March 2020, the scheme initially targeted three sectors, including Mobile and Allied Component Manufacturing, Electrical Component Manufacturing, and Medical Devices. Later, it was expanded to encompass 14 diverse sectors.

Participation and Rewards:

• The PLI scheme extends rewards to both domestic and foreign companies engaged in manufacturing within India.
• The rewards are based on a percentage of their revenue over a maximum period of five years.

Scope of Sectors:

• The 14 sectors covered by the scheme include mobile manufacturing, medical device production, automobile and auto components, pharmaceuticals, specialty steel, telecom and networking products, electronic products, white goods (ACs and LEDs), food products, textile products, solar PV modules, advanced chemistry cell (ACC) batteries, and drones along with drone components.

Incentive Calculation:

• The incentives provided are calculated with reference to incremental sales.
• For sectors like advanced chemistry cell batteries, textiles, and the drone industry, the calculation incorporates factors such as sales performance, local value addition, and sales growth over a five-year span.

Fostering Research and Development:

• A key emphasis of the scheme lies in encouraging investment in research and development.
• This approach ensures that industries remain aligned with global trends and maintain competitiveness in the international marketplace.

Achievements in Smartphone Manufacturing:

• The PLI scheme’s effectiveness is evident in the smartphone manufacturing sector.
• In FY 2017-18, mobile phone imports totaled USD 3.6 billion, with exports at a mere USD 334 million, leading to a trade deficit of -USD 3.3 billion.
• However, by FY 2022-23, imports decreased to USD 1.6 billion, while exports surged to almost USD 11 billion, yielding a positive net export value of USD 9.8 billion.
• This stands as a testament to the scheme’s role in reducing trade deficits and enhancing India’s manufacturing and export capabilities.

Challenges and Concerns Surrounding the PLI Scheme

Limited Value Addition in Mobile Manufacturing:

• Subsidies in the Mobile and Allied Component Manufacturing sector are provided based solely on phone assembly in India, rather than on the value added through domestic manufacturing.
• This has led to the import of numerous components for mobile phones, including display screens, cameras, batteries, and printed circuit boards.
• Despite a surge in mobile phone exports, much of the value addition remains outside India.

WTO Limitations on Subsidies:

• WTO regulations prevent India from tying PLI subsidies to domestic value addition, hindering efforts to encourage higher value-added activities.
• While India aims to manufacture complex components like chips, this aspiration faces challenges due to the complexity involved.

Lack of Clarity in Incentive Allocation:

• The Empowered Committee responsible for overseeing the PLI scheme and distributing funds lacks clear guidelines for awarding incentives.
• Ministries and departments lack standardized criteria for determining incentive allocation, raising concerns about the fairness and effectiveness of the scheme.

Absence of Comprehensive Data:

• The absence of a centralized database capturing metrics such as production increase, exports, and job creation complicates the evaluation process.
• This data gap creates administrative complexities and undermines transparency, potentially leading to mismanagement and weakening the integrity of the policy framework.

-Source: The Hindu