High-tech manufacturing strategy should be rolled out; govt must weigh the benefits of the PLI against the outlays
Manufacturing as a share of India’s GDP fell to 15.6% in FY20 and stayed there in FY21, down from the high of 16.8% in FY18. A strategy paper floated by the department of promotion of industry and internal trade (DPIIT) some time back, on reforming industrial growth, focused on the need to increase the share of manufacturing to 20% by 2025. That looks like a tall ask now, given the disruption due to the pandemic, but the production-linked incentive (PLI) scheme could nonetheless take the share somewhere close. Indeed, even as it encourages local production, it cuts the import bill and boosts export earnings.
For an additional investment of Rs 2-2.5 lakh crore, additional production value that could be generated over the next 5-7 years is estimated at Rs 30-35 lakh crore. According to Kotak Institutional Equities, an incremental nominal value addition of around Rs 2 lakh crore, on average, is possible every year, which compares with an average manufacturing value addition of Rs 1.3 lakh crore over the 10 years to FY19. That is a 50%-plus jump, but can only materialise if the scheme gets going. So far, the progress has been somewhat slow. Of the 13 sectors for which outlays have been finalised, guidelines need to be framed for a few; in others, the industry’s concerns need to be addressed. For a couple—textile products and automobiles—the schemes are awaiting Cabinet approval.
We also haven’t heard much from the empowered committee set up to promote manufacturing in high-tech areas earlier this year. An official memo in March that was written in bureaucratese seemed to be saying the committee would chalk out a strategy to facilitate investments and production in technology-intensive sectors, including semi-conductors, and also ease the process of getting approvals and so on. Given how one automaker after another is struggling to source chips—first, Maruti said it would be forced to slash production, and now its M&M—the urgency of the situation can’t be lost on anyone. How the DPIIT strategy paper didn’t focus on auto components, given the auto sector relies on imports for a range of components and is one of the country’s biggest employers, is mystifying. Incidentally, the PLI outlay for the auto-plus-components sector is the biggest, at Rs 58,000 crore. But the government seems to be in a quandary on whether to allow suppliers of Chinese origin to invest; moreover, it doesn’t seem to be able to zero in on a base year. Also, a Rs 6,322-crore outlay for specialty steels, aimed at more than doubling production from the current levels of 18mt and offering incentives of 4-15%, has been cleared, but needs some finishing touches.
The PLI playbook is a good one, but not all the 13 sectors are likely to attract the kind of interest that the handphones sector has; for that to happen, the government must work harder to satisfy manufacturers’ needs. However, it must not go overboard and give in to lobbying. It is true the Make-in-India initiative has failed to deliver and, despite a steep cut in corporation taxes, neither foreign nor local firms have invested much. Local businessmen would rather lobby for high import duties than shape up and become competitive. The PLI outlay must deliver returns in the form of jobs and worthwhile import substitution, enabling us to become part of some global supply-chains.