Do production-linked incentives for manufacturing work?
Context
Recently, the former Governor of the Reserve Bank of India (RBI) has questioned the success of the production-linked incentive (PLI) scheme in boosting India’s domestic manufacturing and exports.About India’s manufacturing sector:
- India’s manufacturing sector is a key contributor to the country’s economic growth.
- It accounts for about 15% of India’s Gross Domestic Product (GDP) and employs around 12% of the country’s workforce.
- The sector is diverse and includes a range of industries such as textiles, pharmaceuticals, automobiles, and consumer durables.
- In recent years, the Indian government has implemented a number of initiatives to boost the manufacturing sector, including the “Make in India” campaign, which aims to increase the share of manufacturing in the country’s GDP and promote the growth of domestic manufacturing.
- The government has also set up a number of special economic zones (SEZs) to attract foreign investment in the sector.
- Production Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on incremental sales from products manufactured in domestic units.
- The scheme invites foreign companies to set up units in India, however, it also aims to encourage local companies to set up or expand existing manufacturing units and also to generate more employment and cut down the country’s reliance on imports from other countries.
| It was launched in April 2020, for the Large Scale Electronics Manufacturing sector, but later towards the end of 2020 was introduced for 10 other sectors. |
- This scheme was introduced in line with India’s ‘Atmanirbhar Bharat campaign’.
- PLI scheme can significantly restructure India’s domestic manufacturing, push its share in the GDP to 25 per cent and foster seamless upgradation of domestic firms into the regional and global production networks.
- Leaving behind MSMEs:
- The beneficiary sectors under the PLI scheme such as automobiles, electronics and technical textiles are largely constituted by big firms.
- Obviously, this is not representative of the actual configuration of the Indian industrial structure, which is largely composed of Micro, Small & Medium Enterprises (MSMEs).
- Lack of resources:
- The efficacy of production subsidies to galvanise sector-specific manufacturing depend on a combination of factors like a steady stock of raw materials available at competitive prices, size of the domestic market, relationship between upstream and downstream manufacturers, among others.
- The lack of a centralised database:
- To capture information like increase in production or exports, numbers of new jobs created etc. make the evaluation process complex to administer.
- This information ambiguity impacts transparency and can lead to malfeasance, further widening the fault lines and weakening the policy structure.
- Production Linked Incentive (PLI) Schemes
- Make in India
- Investment Clearance Cell (ICC)
- One District One Product (ODOP)
- Setting up Special Economic Zones (SEZs)
- Flexibility in the labour laws