It is just as well that a high level meeting on the performance of the Production Linked Incentive (PLI) scheme is slated for this week. The PLI scheme was floated in phases, beginning from March 2020, to create manufacturing jobs, raise exports and curtail imports across 14 sectors. It rewards incremental sales to the tune of 4-10 per cent across sectors (from telecom to semi-conductors to textiles) on a high investment base. An outlay of ₹1.97-lakh crore for 14 sectors is to be released over five to seven years. Now, it is time to take stock.
According to Economic Survey 2022-23, PLI is expected to attract a capex of ₹3-lakh crore over the next five years and create over six million jobs in all. According to the Centre, an investment of ₹53,500 crore has been generated under PLI till December 2022 (it is expected to have crossed ₹60,000 crore now), translating into an incentive payout of ₹2,800 crore to eight sectors, as reported by this newspaper. This does not seem like bad going. The puzzle here is the Centre’s ‘actual incremental sales’ figure of ₹5-lakh crore that has apparently been achieved in three years or less. These figures need some explaining. Whether this low capital intensity points to mere assembly and sale of products such as phones is worth considering.
PLIs are rightly meant to create scale to improve competitiveness. However, exports should be produced through local sourcing rather than imports for the payout to seem worthwhile. The scheme should be designed such that component makers too get a fillip. According to the Global Trade Research Initiative, electronics exports have been rising but imports have risen faster. The trade gap jumped by nearly $10 billion between FY20 and FY23. Exports in the latter year were $22.7 billion, while the trade gap was $50.8 billion. Bulk of the PLI has gone to just three sectors — large scale electronics, pharmaceuticals and food products — while eight sectors in all have claimed PLI benefits, including drones and telecom. Six sectors have not.
The PLI should not be sprayed across sectors where it is not working. It could be restricted to critical sectors or niche areas, where India needs to develop from scratch. An ‘anchor investor’ can enter a nascent sector, such as, say, high tech toys, AI, 3-D printing, high-end phones or high quality man-made fibre. Such an investor can create an ecosystem, just as Maruti Suzuki did in the late 1980s. Pharma raw material output should be catalysed to reduce Chinese dependence. PLIs could incentivise technologies to cope with the EU’s carbon tax. It could promote reverse engineering in a range of products for widespread industrial use. For existing industries, infra development that benefits all players is the way to go. Industry-specific schemes have been gamed before. In this case, sales figures can be fudged, more so when values rather than volumes are being tracked. So, it may be time for PLI 2.0, or for an altogether different tack.