PLI schemes to be reviewed for possible course correction

Introduced in 2020 with an incentive outlay of Rs. 1.97 lakh crore (about US$ 26 billion), the PLI schemes currently cover 14 sectors, to bolster their production capabilities and for creating national manufacturing champions. PLI performance in eight sectors reflects a positive outlook but the other six sectors need course correction, according to a recent release by the government. 

In order to bring the right sync, the government, for the first time, is planning to review the PLI schemes for the sectors which seem to be lagging behind. 

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Production-Linked Incentive (PLI) Scheme is a much discussed and debated Government of India initiative to achieve the goal of an ‘Aatmanirbhar Bharat’. Since the launch of PLI Schemes in 2020 with an incentive budget of about Rs. 1.97 lakh crore (US$ 26 billion), the country has seen a significant increase in production in some sectors along with employment generation, economic growth and enhancement of exports. Consequent to the implementation of PLI Schemes, India’s export basket composition has seen some modification from traditional commodities to high-value-added items like electronics, telecommunication goods, and processed food products.

The specific purpose of the schemes is to boost domestic manufacturing in sunrise and strategic sectors, reduce imports, improve the cost competitiveness of domestically manufactured goods, build up domestic capacity and enhance exports. PLI schemes were introduced to make domestic manufacturing globally competitive and create global Champions in manufacturing.

Under the PLI scheme, companies are offered incentives for incremental sales from the products manufactured in the country. Currently, Production Linked Incentive (PLI) Schemes cover 14 key sectors. However, only around Rs. 2,900 crore has been disbursed as incentives in the fiscal year 2022-23 for 8 sectors – Large-Scale Electronics Manufacturing (LSEM), IT Hardware, Bulk Drugs, Medical Devices, Pharmaceuticals, Telecom & Networking Products, Food Processing and Drones & Drone Components.

The government is therefore planning to review the schemes for those sectors where the scheme has not achieved full utilisation and is lagging. These six sectors are Steel, textiles, advanced chemistry cell (ACC) batteries, automobiles & auto components, high-efficiency solar PV modules and white goods.

How the PLI schemes have performed so far?

The central Government has so far (till June 2023) approved 733 applications for the 14 sectors. In sectors like Bulk Drugs, Medical Devices, Pharma, Telecom, White Goods, Food Processing, and Textiles & Drones, around 176 Micro, Small and Medium Enterprises (MSMEs) have benefitted from the PLI schemes.

The actual investment realised till March 2023 was worth Rs. 62,500 Crore, which resulted in over Rs. 6.75 Lakh Crore of incremental production/sales while employment generation has been around 3,25,000. The country’s exports have increased by Rs 2.56 lakh crore till FY 2022-23, according to government data.

Although the PLI performance has been healthy in these eight sectors, the growth in sectors like High-efficiency solar PV modules, advanced chemistry cell batteries, textile products and speciality steel has been somewhat slow. 

Notably, the PLI Scheme has been successful in attracting major smartphone companies like Foxconn, Wistron, and Pegatron into India. These companies have been shifting their suppliers to India. Consequently, high-end phones are now being manufactured in the country. Of the total mobile phone exports in 2022-23, about 82% was contributed by the PLI beneficiaries.

The PLI Scheme for Large-Scale Electronics Manufacturing (LSEM) together with Phased Manufacturing Program (PMP) has led to an increase in ‘value addition’ in the sector. The electronics sector has experienced an increase in value addition of 23%, while smartphone manufacturing has seen an increase of 20% in value addition over the negligible figures of 2014-15.

Rajesh Kumar Singh, Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT) said, “ We have been able to increase value addition in mobile manufacturing to 20% within a period of 3 years, whereas countries like Vietnam achieved 18% value addition over 15 years and China achieved 49% value addition in over 25 years. Seen in this perspective, it is a big achievement.” Out of the US$ 101 billion  electronics production in FY 2022-23, smartphones accounted for US$ 44 Billion, including exports worth US$ 11.1 billion.

With respect to the Telecom sector, PLI scheme has enabled India to become almost self–reliant in Antennae, GPON (Gigabit Passive Optical Network) & CPE (Customer Premises Equipment), thereby achieving import substitution of about 60%. There has been a sevenfold increase in the turnover of the drone sector, which consists of all MSME start-ups. The income of farmers and MSMEs in the country has experienced a positive impact, on account of a significant increase in sourcing of raw materials from India, under the PLI Scheme for Food Processing.

The other major achievement of PLI schemes is a ‘20-fold’ growth in the employment of females and localization in IT Hardware, especially in the production of laptops and batteries. The Pharma sector has logged in a substantial reduction in imports of raw materials, as unique intermediate materials and bulk drugs, including Penicillin-G, are now being manufactured in the country. Further, technology transfer has materialised in the production of medical devices like CT scans and MRI machines.

In addition, PLI schemes have led to an increase in Foreign Direct investments (FDI). Industries that have recorded strong growth in the FDI inflows between FY 2021-22 to FY 2022-23 are Drugs and Pharmaceuticals (+46%); Food Processing Industries (+26%) and Medical Appliances (+91%).

This year in May, the government announced the PLI 2.0 for IT hardware with an outlay of Rs 17,000 crore. It is envisaging PLI schemes for sectors like toys, leather and footwear, and components for new-age bicycles (for example e-bikes). Apart from that, no new sectors will be announced for now, and the budgetary outlay of Rs 197,000 crore will also not be increased.