Why in News?

While some sectors have shown encouraging results under the Production-Linked Incentive (PLI) scheme, others lag in meeting targets, prompting reviews and potential adjustments.

What’s in Today’s Article?

• What is the PLI Scheme?
• Evaluating Progress, Challenges and Potential of the PLI Scheme
• Conclusion

What is the PLI Scheme?

• About: The PLI scheme was launched (in March, 2020) to boost India’s domestic manufacturing base and enhance its global supply chain contribution.
• Objective: Covering 14 sectors, the scheme aims to create significant employment opportunities and drive industrial capital expenditure (capex).
• How does it work?
  • Under the PLI scheme, eligible companies receive financial incentives based on their incremental sales from products manufactured in India.
  • These incentives encourage companies to invest in upgrading their manufacturing capabilities, adopting modern technologies, and expanding their production capacities.
• How is PLI different from other traditional subsidies?
  • Only limited sectors are eligible: The scheme has the potential to attract maximum investments and scale rapidly to provide the maximum returns in terms of incremental production, employment, and export.
  • Time-bound pre-committed levels of investment and productions: Hence, cannot be called a subsidy scheme.
  • Focus on supporting upcoming technologies: That can be commercialised at a large scale like advanced chemistry cell batteries, electronic and technology products.
  • 

Evaluating Progress, Challenges and Potential of the PLI Scheme:

• Mixed progress across sectors:
  • Sectors lagging in employment generation:
    • Textiles, solar modules, IT hardware, automobiles, advanced chemical cells (ACC), and specialty steel have seen relatively slow progress in creating jobs.
    • Initial challenges stem from the need to build domestic manufacturing capabilities from scratch.
  • Successful sectors:
    • Food processing and mobile phone manufacturing have exceeded expectations.
    • For instance, smartphone exports reached $15 billion in 2023-24, driven by companies like Apple expanding assembly operations in India.
• Initial challenges and emerging benefits:
  • Challenges:
    • Developing manufacturing industries from scratch in certain sectors.
    • Stringent eligibility criteria, reliance on imported machinery, and high tariffs have been deterrents.
    • Time-consuming commissioning processes in sectors like solar modules and ACC, which require 1.5–3 years to set up.
  • Emerging benefits:
    • Sectors like mobile manufacturing show a ripple effect, with large companies like Apple spurring ancillary industries and creating opportunities for smaller suppliers.
    • For instance, Apple now sources components from 14 Indian suppliers compared to none prior to the PLI scheme.
• Economic potential: According to CRISIL, the PLI scheme could drive ₹3-3.5 lakh crore in industrial capital expenditure over its duration, contributing 8–10% of total capex in key sectors over the next 3–4 years.
• Critical perspectives: Critics argue that the PLI scheme may function as a subsidy without guaranteeing long-term competitiveness once incentives end.
• Way ahead:
  • Sectoral adjustments: IT hardware recently received an upgraded outlay. Renewals or adjustments are under consideration for sectors like textiles and drones.
  • Potential revisions: Revising eligibility criteria and increasing support in underperforming sectors. Emphasising employment-linked outcomes in sectors with slow initial traction. 

Conclusion:

• Challenges in underperforming sectors highlight the need for fine-tuning policies to achieve long-term goals of industrial growth, employment, and competitiveness.
• As the government recalibrates the framework, sustained engagement with stakeholders and addressing structural bottlenecks will be key to realising the scheme’s full potential.