PLI scheme will help India nurture manufacturing giants
November 16, 2020 7:00 AM
A key benefit of the PLI Scheme is that it can be implemented in a very targeted manner to attract investments in areas of strength and to strategically enter certain segments of global value chains
The sectors for PLI have been shortlisted on the basis of their potential for economic growth, revenue and employment generation.
By Ishtiyaque Ahmed
Manufacturing has been the backbone of all developed and developing nations. It has pioneered almost every historic breakthrough in concepts, tools and methodologies over the last two centuries. It has also been the biggest contributor to employment across both skilled and unskilled labour force.
The world of manufacturing is now more interconnected than ever before with all major industries—automobile, electronics, pharmaceuticals, textiles, etc—operating as a global value-chain, with multiple countries adding value at different points. A simple apparel at a department store in the United States is likely to be designed in France or Italy, stitched at a manufacturing centre in India or Bangladesh with man-made fabric sourced from China and shipped by a German logistics company.
In order to integrate India as a pivotal part of this modern economy, there is a strong need to step up our manufacturing capabilities in sectors of high growth, including the cutting edge technology sectors. A strong, vigorous and dynamic manufacturing sector will fuel India’s economic growth by allowing companies producing in India to penetrate effectively into the global supply chains across various sectors. Apart from enhancing exports, it will also reduce our import dependencies and spur domestic consumption.
The call for ‘Atmanirbhar Bharat’ has once again brought manufacturing to the centre stage and emphasised its significance in driving India’s growth and creating jobs in the country at a large scale. India offers an attractive domestic market, with a large population in the educated and earning segment. It also has a strong institutional framework which allows for a smooth functioning of the industry.
A concerted effort towards attracting substantial investments for the creation of large manufacturing facilities, combined with a sharp focus on efficiency and economies of scale, can help Indian companies and manufacturers become globally competitive and integrate with the global markets.
The Production Linked Incentive (PLI) Scheme is designed to incentivise incremental production for a limited number of eligible anchor entities in each of the selected sectors who will invest in technology, plant & machinery, as well as in R&D. The scheme will also have beneficial spillover effects by the creation of a widespread supplier base for the anchor units established under the scheme. Along with the anchor unit, these supplier units will also help to generate massive primary and secondary employment opportunities. A key benefit of the PLI Scheme is that it can be implemented in a very targeted manner to attract investments in areas of strength and to strategically enter certain segments of global value chains (GVCs). This will help bring scale and size in key sectors and create and nurture global champions.
We have precedence from our competing economies, offering incentives liberally under various heads such as R&D, skilling support, amongst others, to encourage international and domestic firms to move to their countries and scale up their production capabilities. As a consequence, major multinational companies shifted major parts of their manufacturing to these geographies.
The sectors for PLI have been shortlisted on the basis of their potential for economic growth, revenue and employment generation. The extent of benefit to the rural economy and its criticality in the next few decades has also been considered while finalising the sectors.
With a focus on building a forward-looking manufacturing segment, the scheme incentivises upcoming technologies that represent the biggest economic opportunities of the 21st century. These include Advanced Cell Chemistry Batteries, Electronic & Technology Products and Solar Photovoltaic Modules. These are crucial sectors for sustaining rapid growth in digital economy, electric vehicles and renewable energy. Extremely strong manufacturing capabilities in these are also essential for taking on the Asian competitors who have made blinding progress in one or more of these sectors. It will also aid rural upliftment in India by ensuring continuous electricity availability and digital connectivity.
Secondly, the scheme intends to generate large-scale employment by incentivising the development of traditional, labour intensive sectors like Food Processing and Textiles. The current basket of Indian manufacturing constitutes of large volume of low-value products. The scheme aims to correct this by encouraging large manufacturers to bring technology and to build capabilities for high value output thereby providing higher returns to the upstream producers. It will also enable increase in exports.
Finally, the scheme envisages a globally-integrated manufacturing in sectors such as automobile and auto components, pharmaceuticals, telecommunications, white goods and steel. These are crucial sectors in terms of their strategic importance, contribution to the GDP and employment-generation potential. The scheme aims to further strengthen these sectors to enable creation of global champions who will bring in technological upgradation and enhance the value of export basket of the country. It will also encourage these manufacturers to seize the emerging international opportunities, given the changing geo-political orientation of the world.
Each of these sectors will have specific criteria of investment, production volumes, export focus with ingredients of domestic value addition and employment.
The beneficiaries will be shortlisted based on their level of commitment towards achieving scale while meeting other specified performance parameters such as minimum investments, minimum incremental growth etc. The performance of the overall scheme as well as the shortlisted beneficiaries will be reviewed periodically during operation of the scheme.
Given the scale of incentives, which is around Rs 1,96,000 crore, the manufacturing sector of the country is set to transform in the next few years. Its contribution to the GDP will significantly improve, leading to unprecedented investment and job creation.
The author is IRS officer, presently working in NITI Aayog as Advisor, Industries Views are personal