– By Rahul Garg
The Production Linked Incentive (PLI) Schemes are an important government program that aims to increase local production, assist companies, and encourage India’s start-up community. As per the latest announcement by the Ministry of Commerce & Industry, PLI Schemes see more than Rs. 1.03 trillion investments being made by November 2023, resulting in production/sales worth Rs. 8.61 lakh crore along with creating employment for more than 6.78 lakh people (both directly and indirectly). PLI Schemes have seen exports exceeding Rs. 3.20 trillion rupees with major contributions from industries like Large-Scale Electronics Production, Pharmaceuticals, Food Processing, and Telecom & Networking goods.
Performance-linked incentives accelerate investment in vital sectors, create employment, and enhance the overall value generated in the economy. These incentives are provided through various mechanisms, such as grants, tax rebates, export duty reductions, and import duty relaxations. The Government identifies multiple sectors of social importance based on their benefits to society and the nation’s citizens. Incentives are given according to the sales volumes and exports of specific products to help start-ups.
Currently, 746 applications in 14 Sectors have been approved with an expected investment exceeding Rs. 300,000 crore. Notably, 176 of these applicants are from the MSME sector, covering domains such as white goods, pharmaceuticals, drones, medical devices, textiles, telecom, and food processing. The entire model of PLIs produces a cascading effect on the economy, wherein a reduction in the cost of establishing or conducting business leads to tangible benefits for consumers, who experience lower prices for goods and services. This initiative also aims to enhance the capacity of indigenous players by introducing new technologies and processes into the country.
PLI scheme with a focus on reforming the startup ecosystem
Startups are the heart of the economy, brimming with innovation and generating fresh value. Production-linked incentive (PLI) schemes can significantly impact the situation by supporting startups and MSMEs to grow even bigger. Interestingly, as per reports, the government is considering introducing a novel PLI scheme specifically for startups, shifting away from the traditional sector-focused approach. A revised PLI framework will now be linked to job creation, wherein the MSME sector has already emerged stronger. Notably, the government’s MSME portal recently reported over 20 crore jobs in this sector alone. Since startups and MSMEs are already a driving force for job creation, the new PLI methodology will be a significant impetus for the employment sector and support startups in accelerating operations.
Sectors impacted the most by PLI schemes
Since the introduction of the PLI schemes during the COVID-19 pandemic, they have significantly contributed to the economy’s recovery. One primary sector that has experienced transformation is the technology sector, with a notable boost in the manufacturing of electronic devices. For instance, prominent Apple contractors like Foxconn, Pegatron, and Wistron have ventured into India to produce Apple devices. The Vedanta-Foxconn collaboration for large-scale semiconductor manufacturing is another example of this initiative’s impact. As a result, smartphones with numerous features are now readily accessible at affordable prices within the country.
The pharmaceutical sector has also benefited from the PLI schemes, with India emerging as one of the largest producers of vaccines and generic drugs. By February 2023, the expected investment in this sector was Rs. 17,425 crores over the scheme period, with the Government investing Rs. 16,199 crores for approximately 55 applicants in the first year of implementation. As a ripple effect, the employment projection of this impact was over 1 lakh jobs over six years, with about 23,000 individuals already employed by February 2023.
PLI Schemes Need Refinement and Sector-Specific Adjustments for Greater Impact
Although the PLI schemes are efficient, there is still a need to improve the criteria and mechanisms for distributing funds to create consistent standards across all ministries. Further improvements can be made to a central database that can measure the on-ground impact of these programs, including metrics like exports, production, and jobs generated. Despite extensive discussion, it is believed that the programs are mainly intended for bigger companies that meet the criteria of the PLI scheme.
Moreover, the PLI schemes have not yet taken into account many elements such as raw material availability, pricing competition, domestic demand size, and the relationships among manufacturers when production is closely tied to these factors. Accounting for these complex arrangements and combinations is essential to develop a mature plan.
What’s more, many believe that PLI schemes assume that the manufacturing sector is one broad umbrella. The scheme can be augmented to acknowledge the unique dynamics in each sector, which have divergent requirements. For example, in the pharma industry, the incentives should prioritise enhancing research and development rather than merely focusing on sales volumes for the PLI to be effective. A pharmaceutical company can only increase sales through a comprehensive and sophisticated R&D setup, and that precedes sales volumes.
The Way Ahead
The government’s emphasis is on the successful finishing of the project in the 14 current sectors at present. Nevertheless, there is a continuous demand from the industry to broaden the implementation of the PLI scheme to sectors like toys, footwear & leather, electronics components, jewellery, handicrafts, garments of all fabrics, shipping containers, chemicals and services, leather products, garments, jewellery, and other consumer goods. This will contribute to increasing the number of job opportunities in the country and boosting its share of exports.
In retrospect, the PLI schemes represent progressiveness that has spurred economic growth, making the economy more resilient post-COVID-19. Further efforts are required to streamline the criteria for selecting industries and to enhance benefits for MSMEs. A uniform selection parameter cannot be applied to every sector, calling for careful consideration to deliver incentives effectively and measure their on-ground impact. This approach is essential for fostering innovative reforms.
(Rahul Garg is the CEO & Founder of Moglix.)
(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)