Budget 2022 Survey: PLI, boost for ailing economy or under-utilised policy step? FM Sitharaman must plug gaps

According to a survey conducted by Financial Express Online, government must focus on plugging the gaps in the implementation of the Make-in-India centric PLI scheme instead of expanding the purview of the scheme to various other sub-sectors.

PLI scheme, announced by the FM Sitharaman in last budget, was launched for 13 key sectors including auto sector. (File Photo: PTI)

The government must focus on plugging the gaps in the implementation of the Make-in-India centric PLI scheme instead of expanding the purview of the scheme to various other sub-sectors, a survey of economists and analysts conducted by Financial Express Online showed. “The government should focus on resolving issues and speeding up the execution of the already announced PLI schemes and allocate adequate funds for the same in the FY2023 budget,” Aditi Nayar, Chief Economist, ICRA Ltd said. The government is unlikely to expand the PLI scheme to other sectors in the economy at the current juncture, she added.

The Ministry of Finance announced a Rs 1.97 lakh crore production-linked incentive scheme (PLI) in the last budget, for sectors such as telecom and auto. Some say the government must bring in more investments using the existing provisions. “The government has already announced many industry or sector specific PLI schemes, and their progress in terms of fresh investments is still limited. It may be prudent for the government to expedite the investments in the PLI schemes already announced rather than more announcements,” R Nagaraj, Professor of Economics at Indira Gandhi Institute of Development Research said.

Private investment waiting to take off

Though the scheme has helped some sectors considerably from ravages of the COVID-19 pandemic, there has not been an optimum utilisation of the scheme. “The underlying factors and drivers for revival in private investment remain in place amidst low cost of borrowing, robust corporate balance sheets, deleverage companies, and efficient cost management practices. However, the capacity utilisation levels remain dismally low and that may delay the revival in private capex. The PLI schemes seem to be helping a few sectors considerably but the full benefits will be reaped in the medium term,” Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, said.

“The intent of the PLI scheme was to help the sectors that got devastated due to lockdowns and the pandemic. And I think over a period, they also extended that to labor intensive sectors. So, it has done extremely well in my view, which has helped recover the whole manufacturing sector. In fact, PMI manufacturing was very high in the month of November, December when the PLI was at its peak, when the utilisation was at its peak,” NR Bhanumurthy, Vice-Chancellor at Ambedkar School of Economics University said in the survey. 

Limited absorption capacity in certain sectors

Bhanumurthy, however, pointed out that expanding the PLI scheme could have certain limitations and the sectors may not be able to fully utilise the outlay. “I know MSME sectors are waiting for that PLI kind of scheme. But unfortunately, given the scheme that has been introduced as part of the Atmanirbhar Bharat, the MSME sectors could not really utilise more than 60% of the allocated resources where that was given. So my feeling is there could be some limits to the extent where government incentives can be given to some of the sectors,” he said. A case in point is the credit guarantee scheme for MSMEs: the government allocated Rs 3 lakh crore to MSMEs under the Atmanirbhar Bharat scheme, but only Rs 1.8 lakh crore has been disbursed in almost one-and-a-half years.

How PLI scheme incentivises manufacturing in India

The scheme will likely improve manufacturing related investment in India and will be helpful at a time when global supply chain relocation is a big tailwind for India, Rahul Bajoria, Chief Economist, India at Barclays said. The PLI scheme is spread over a five-year period for 13 key sectors, for which companies will be incentivised when they reach certain benchmarks. For example the scheme offers manufacturers cash-backs of between 1% and 4% of additional sales of locally made goods over four years, with 2019-2020 as the base year, according to a Reuters report.

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