Infrastructure

How PLI scheme is boosting Indian manufacturing

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The production-linked incentive (PLI) scheme is a central government scheme that seeks to make India an efficient, equitable and resilient manufacturing hub, on the lines of Prime Minister Narendra Modi’s call for a self-reliant India. Mint explains:

What are the key goals of the PLI scheme?

The scheme aims to make India self-reliant in manufacturing goods for local and export markets, positioning it as a global manufacturing hub. It also aims to make domestic manufacturing competitive and efficient, build capacity, and benefit from economies of scale, enhance exports, attract investment and create jobs. The success story of special economic zones (SEZs) only adds credence to the impact that this scheme can also have on the economy. The scheme is on the lines of ‘Made in China 2025’ which aims at enhancing competitive strength of selected sectors.

How will it incentivize manufacturing ops?

The production-linked incentive scheme gives eligible manufacturing companies a 4-6% incentive on incremental sales over the base year of 2019-20 for a five-year period. It is a kind of subsidy being provided by direct payment from the budget for domestically manufactured goods. The incentive amount varies across sectors and savings generated from PLI of one sector can be utilized to fund other sectors, maximizing returns. The PLI scheme will incentivize large domestic and global players to boost production, build a competitive ecosystem and lead to more inclusive growth

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Policy push

What are the measures proposed in the budget?

The budget has allocated 1.97 trillion for various PLI schemes over the next five years. This is in addition to the 40,951 crore announced for electronics goods manufacturing. In the wake of covid-19, this move will create backward linkages with MSMEs, leading to inclusive growth and providing the required boost for economic growth.

Which sectors will gain from the scheme?

The scheme is applicable to registered firms under the specified target segments. The company could be a newly set up unit or an existing manufacturing firm. The scheme aims to build a level playing platform for the sectors vis-à-vis competing countries and take care of existing disabilities such as inadequate infrastructure, high cost of finance and inadequacies in skill development. Implementation is to be done through the respective administrative ministry or undertaking.

What is the economic rationale behind PLI?

The scheme has sparked interest of global giants such as Samsung, Foxconn and Wistron to set up shop in India. For example, firms manufacturing phones costing over 15,000 will get an incentive of 6% on additional phones made in India. For companies owned by Indian nationals, the incentive is set at 200 crore for the next four-year period. Thus, it serves a two-fold purpose of attracting foreign investments and incentivizing domestic manufacturers.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH

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